Question
4. Suppose we can buy the truck platforms for $9,000 each. The facilities we need can be leased for $25,000 per year. The labor and
4. Suppose we can buy the truck platforms for $9,000 each. The facilities we need can be leased for $25,000 per year. The labor and material cost to do the modification works out to be about $5,000 per truck. Total cost per year will thus be $25,000 + 5 (9,000 + 5,000) = $95,000. We will need to invest $70,000 in new equipment. This equipment will be depreciated straight-line to a zero-salvage value over the four years. It will be worth about $4,000 at the end of that time. We will also need to invest $40,000 in raw materials inventory and other working capital items. The relevant tax rate is 21 percent. What price per truck should we bid if we require a 20 percent return on our investment?
Sales | |
Depreciation | |
Fixed Cost | |
Variable Cost | |
EBIT | |
Taxes (21%) | |
Net Income |
EBIT | |
+Depreciation | |
-Taxes (21%) | |
OCF |
Year | |||||
0 | 1 | 2 | 3 | 4 | |
OCF | |||||
Change in NWC | |||||
Capital Spending | |||||
Total Cash Flow |
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