7:14 Done 7 of 7 Problem Kennedy Trung Company ( wten en based on proba L013- For years ago, Kenney Trucking Company cong the purchase of deltructure percent more fuel efficient than the snowing Mr. Hi, the prette found that the company en ve of 10 itons of full per year atance of $1.25 per gallon he can cut fuel compoon by 15 percent, he will save 51,675.000 per year (9.500,000 gallon times $1.25), Problem Continued Forecast for assumption 1 (low fuel prices Probability (same for each year Price of Diesel Fuel per Gallos Year1 Year 2 Year 3 S.80 5.90 51.00 1.00 110 110 1.10 1.20 1.30 130 1.45 LAS 1:40 1.55 2 7:15 Done 7 of 7 Probability (ume for cach year) Price of Diesel Fuel per Galler Year 1 Year 2 Year) 31.20 51.50 51.70 130 170 2.00 10 230 250 2.50 2.50 a. b. C. What will be the dollar savings in diesel expenses each year for assumption and for assumption 2 Find the increased cash flow after taxes for both forecasts Compute the net present value of the truck purchases for each fuel forecast assumption and the combined net present value that is, weigh the NPV by 5) If you were Mr. Hoffman, would you go ahead with this capital d. investment? Comprehensive Problem 7:15 Done 7 of 7 Y1 YE 2 Yr. 1 Yr 2 Yr. 3 D D Yr. Expected Cost/Gal. 5115 of Gals. Without Efficiency Cost 5715 Savings with Efficiency 35 Total 5 Saved 90 To of Gals. s Saving 7:15 Done 7 of 7 of Gals. Expected without Cost/Gal. Efficiency 51 AT DAT Savings with Efficiency Yr. Total $ Saved Cost Stanoooo Year 1 X Year 2 25% * $5 mil. = 1.25 mil. 38% * $5 mil. = 1.90 mil. 37% * $5 mil. = 1.85 mil. Year 3 Year 1 Year 2 Year 3 51.725,000 $1905.00 $1,000 crea EBD Increase ISTE 785.000 3.000 Increased cano 51.535 51.03 DOOD Assumption Year 3 Year 1 $2.505 Year 2 53120.000 Ince INDEE 1.255.000 120.00 ch 3 7:15 Done 7 of 7 Year 1 $2.505.000 Year 2 Year 3 33.120.000 53.00 Incame EEE 1.755.000 ICEA 753.000 increased throw 52.003.000 32,632000 320 C. Assumption Year 1 2 3 Cash Flow PV, 10% 51.535.000 0.909 1.903,000 0.826 1,928,000 0.751 PV of Inflows Initial Investment NPV Present Value Using Excel 51.305,315 $ 1395.6545 1.571,678 1.57272727 1.447.928 $14485349 54.415,121 5 4,416.716.75 5.000.000 $15,000,000.00 55847 $ 583.200.25 di Present Value Assumption Year 1 2 3 Cash Flow PV, @10% Present Value Using Excel $2,003,000 0.909 $1,820,727 $ 1.820,909.09 2,632,000 0.826 2,174,032 $ 2.175.206.61 2,837,000 0.751 2,130,587 $ 2131.480.00 PV of Inflows 56,125,346 $ 6,127.595.79 Initial Investment 5,000,000 S (5,000,000.00) NPV $1,125,346 $ 1,127 595.79 ci Present Value Assumption 2 7:15 Done 7 of 7 Year 1 2 3 Cash Flow PV, 10% Present Value Using Excel $2,003,000 0.909 $1,820.727 $ 1.620.909.09 2,632,000 0.826 2,174,032 $ 2175.206.61 2,837,000 0.751 2,130,587 $ 2131.480.09 PV of Inflows $6,125.346 $ 6,127,595.79 Initial Investment 5,000,000 S (5,000,000.00) NPV $1,125.346 $ 1,127,595.79 d. Present Value Assumption NEW Hotellit E27 Combined NP e. YesThe combined expected value of the outcomes is positive. f. Quite sensitive when that many gallons are used per year. 7:14 Done 7 of 7 Problem Kennedy Trung Company ( wten en based on proba L013- For years ago, Kenney Trucking Company cong the purchase of deltructure percent more fuel efficient than the snowing Mr. Hi, the prette found that the company en ve of 10 itons of full per year atance of $1.25 per gallon he can cut fuel compoon by 15 percent, he will save 51,675.000 per year (9.500,000 gallon times $1.25), Problem Continued Forecast for assumption 1 (low fuel prices Probability (same for each year Price of Diesel Fuel per Gallos Year1 Year 2 Year 3 S.80 5.90 51.00 1.00 110 110 1.10 1.20 1.30 130 1.45 LAS 1:40 1.55 2 7:15 Done 7 of 7 Probability (ume for cach year) Price of Diesel Fuel per Galler Year 1 Year 2 Year) 31.20 51.50 51.70 130 170 2.00 10 230 250 2.50 2.50 a. b. C. What will be the dollar savings in diesel expenses each year for assumption and for assumption 2 Find the increased cash flow after taxes for both forecasts Compute the net present value of the truck purchases for each fuel forecast assumption and the combined net present value that is, weigh the NPV by 5) If you were Mr. Hoffman, would you go ahead with this capital d. investment? Comprehensive Problem 7:15 Done 7 of 7 Y1 YE 2 Yr. 1 Yr 2 Yr. 3 D D Yr. Expected Cost/Gal. 5115 of Gals. Without Efficiency Cost 5715 Savings with Efficiency 35 Total 5 Saved 90 To of Gals. s Saving 7:15 Done 7 of 7 of Gals. Expected without Cost/Gal. Efficiency 51 AT DAT Savings with Efficiency Yr. Total $ Saved Cost Stanoooo Year 1 X Year 2 25% * $5 mil. = 1.25 mil. 38% * $5 mil. = 1.90 mil. 37% * $5 mil. = 1.85 mil. Year 3 Year 1 Year 2 Year 3 51.725,000 $1905.00 $1,000 crea EBD Increase ISTE 785.000 3.000 Increased cano 51.535 51.03 DOOD Assumption Year 3 Year 1 $2.505 Year 2 53120.000 Ince INDEE 1.255.000 120.00 ch 3 7:15 Done 7 of 7 Year 1 $2.505.000 Year 2 Year 3 33.120.000 53.00 Incame EEE 1.755.000 ICEA 753.000 increased throw 52.003.000 32,632000 320 C. Assumption Year 1 2 3 Cash Flow PV, 10% 51.535.000 0.909 1.903,000 0.826 1,928,000 0.751 PV of Inflows Initial Investment NPV Present Value Using Excel 51.305,315 $ 1395.6545 1.571,678 1.57272727 1.447.928 $14485349 54.415,121 5 4,416.716.75 5.000.000 $15,000,000.00 55847 $ 583.200.25 di Present Value Assumption Year 1 2 3 Cash Flow PV, @10% Present Value Using Excel $2,003,000 0.909 $1,820,727 $ 1.820,909.09 2,632,000 0.826 2,174,032 $ 2.175.206.61 2,837,000 0.751 2,130,587 $ 2131.480.00 PV of Inflows 56,125,346 $ 6,127.595.79 Initial Investment 5,000,000 S (5,000,000.00) NPV $1,125,346 $ 1,127 595.79 ci Present Value Assumption 2 7:15 Done 7 of 7 Year 1 2 3 Cash Flow PV, 10% Present Value Using Excel $2,003,000 0.909 $1,820.727 $ 1.620.909.09 2,632,000 0.826 2,174,032 $ 2175.206.61 2,837,000 0.751 2,130,587 $ 2131.480.09 PV of Inflows $6,125.346 $ 6,127,595.79 Initial Investment 5,000,000 S (5,000,000.00) NPV $1,125.346 $ 1,127,595.79 d. Present Value Assumption NEW Hotellit E27 Combined NP e. YesThe combined expected value of the outcomes is positive. f. Quite sensitive when that many gallons are used per year
