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a) What is the net present value? b) Find the net present value if the estimated savings in satellite communications decreased by 10% c) Determine
a) What is the net present value?
b) Find the net present value if the estimated savings in satellite communications decreased by 10%
c) Determine the net present value if the savings in deadhead miles increased by 20%
11.7 Burlington Motor Carriers, a trucking company, is considering the installation of a two-way mobile satellite messaging service on its 2,000 trucks. From tests done last year on 120 trucks, the company found that satellite messaging could cut 60% of its $5 million bill for long-distance communications with truck drivers. More importantly, the drivers who used this system reduced the number of deadhead" milesthose driven without paying loadsby 0.5%. Applying that improvement to all 230 million miles covered by the Burlington fleet each year would produce an extra $1.25 million in savings. Equipping all 2,000 trucks with the satellite hookup will require an investment of $8 million and the construction of a message-relaying system costing $2 million. The equipment and onboard devices will have a service life of eight years and negligible salvage value; they will be depreciated under the five-year MACRS class. Burlington's marginal tax rate is about 25%, and its required minimum attractive rate of return is 18%Step by Step Solution
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