$0\mathrm{.}401\mathrm{.}762\mathrm{.}032\mathrm{.}430\mathrm{.}202\mathrm{.}032\mathrm{.}302\mathrm{.}70$b$.$ What will be the dollar savings in diesel expenses each year for assumption one and forc. Find the increased cash flow after taxes for both forecasts.d$.$ Compute the net present value of the truck purchases for each fuel forecast assumptionet present $($that is$,$ weigh the NPVs by $\mathrm{.}5).$e$.$ If you were Mr$.$ King, would you go ahead with this capital investment?f$.$ How sensitive to fuel prices is this capital investment?

Solution

Problem $13-33($LO $6)$InstructionsUsing the various templates setup for each part, enter formulas and cell references to solva. Using the template below, compute the yearly expected cost of diesel fuel for both assulow prices$)$ and assumption two $($high prices$).$

Assumption $1$Price of Diesel Fuel per LitreProbabilityYear $1$Year $2$Year $30\mathrm{.}10$$$0\mathrm{.}68$$$0\mathrm{.}81$$$0\mathrm{.}950\mathrm{.}20$$$0\mathrm{.}81$$$0\mathrm{.}95$$$1\mathrm{.}080\mathrm{.}30$$$0\mathrm{.}95$$$1\mathrm{.}08$$$1\mathrm{.}220\mathrm{.}20$$$1\mathrm{.}08$$$1\mathrm{.}22$$$1\mathrm{.}350\mathrm{.}20$$$1\mathrm{.}22$$$1\mathrm{.}35$$$1\mathrm{.}49$Expected Values $($Cost$)$Assumption $2$Price of Diesel Fuel per GallonProbabilityYear $1$Year $2$Year $30\mathrm{.}10$$$1\mathrm{.}22$$$1\mathrm{.}35$$$1\mathrm{.}760\mathrm{.}30$$$1\mathrm{.}35$$$1\mathrm{.}49$$$2\mathrm{.}030\mathrm{.}40$$$1\mathrm{.}76$$$2\mathrm{.}03$$$2\mathrm{.}430\mathrm{.}20$$$2\mathrm{.}03$$$2\mathrm{.}30$$$2\mathrm{.}70$Expected Values $($Cost$)$

b$.$ What will be the dollar savings in diesel expenses each year for assumption one and forAssumption $1$# of LitresYearsExpected CostCostWithoutEfficiency$1$$$0\mathrm{.}97530,000,000$$$29,250,0002$$$1\mathrm{.}10930,000,000$$$33,270,0003$$$1\mathrm{.}24530,000,000$$$37,350,000$Assumption $2$# of LitresYearsExpected CostCostWithoutEfficiency$1$$$1\mathrm{.}63730,000,000$$$49,110,0002$$$1\mathrm{.}85430,000,000$$$55,620,0003$$$2\mathrm{.}29730,000,000$$$68,910,000$

c$.$ Find the increased cash flow aftertaxes for both forecasts.Step $1$: Calculate annual CCA $($amortization$)$Years$\%$UCC of TrucksAnnual CCA$115\%$$$13,250,000$$$1,987,500230\%$$$11,262,500$$$3,378,750330\%$$$7,883,750$$$2,365,125$Step $2$: Calculate increased cash flow for each alternativeYear $1$Year $2$Year $3$Assumption $1$Increase in EBDT$$4,387,500$$$4,990,500$$$5,602,500$CCA$$1,987,500$$$3,378,750$$$2,365,125$Increase in EBT$$2,400,000$$$1,611,750$$$3,237,375$Taxes$$720,000$$$483,525$$$971,213$Increase in EAT$$1,680,000$$$1,128,225$$$2,266,163$CCA$$1,987,500$$$3,378,750$$$2,365,125$Increased Cash Flow$$3,667,500$$$4,506,975$$$4,631,288$Year $1$Year $2$Year $3$Assumption $2$Increase in EBDT$$7,366,500$$$8,343,000$$$10,336,500$CCA$$1,987,500$$$3,378,750$$$2,365,125$

Increase in EBT$$5,379,000$$$4,964,250$$$7,971,375$Taxes$$1,613,700$$$1,489,275$$$2,391,413$Increase in EAT$$3,765,300$$$3,474,975$$$5,579,963$CCA$$1,987,500$$$3,378,750$$$2,365,125$Increased Cash Flow$$5,752,800$$$6,853,725$$$7,945,088$

d$.$ Compute the net present value of the truck purchases for each fuel forecast assumptionet present $($that is$,$ weigh the NPVs by $\mathrm{.}5).$Discount rate$11\%$Cost of trucks$$13,250,000$WeightsExpected OutcomeNPV Assumption $1-$$$2,901,62650\%-$$$1,450,813$NPV Assumption $2$$$3,304,71950\%$$$1,652,360$$$201,546$

e$.$ If you were Mr$.$ King, would you go ahead with this capital investment?Yes $-$ the combined expected value of the outcomes is positive.

f$.$ How sensitive to fuel prices is this capital investment?Quite sensitive when that many litres are used per year.