Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Ace trucking company is considering expanding its fleet by 20 new trucks for a total cost of $1.5 million. They expect to keep the
Ace trucking company is considering expanding its fleet by 20 new trucks for a total cost of $1.5 million. They expect to keep the trucks for 10 years and then sell them all for $200,000. To help them decide which type of truck to buy they paid a summer student $7,000 to compare alternatives and create a report. They believe that these new trucks will create incremental annual revenues of $25,000 per additional truck. They expect that annual operating costs per vehicle will be $9,000. Working capital of $20,000 will be required which will be returned when the vehicles are salvaged. The company has a 35% tax bracket, the CA rate equals 30%, and the firm uses 12% as a cost of capital. Based on an NPV analysis should the company purchase the vehicles? Show all your work! (Use equations/formula)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started