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calculate the npv and rr IAM Appmaths Icecream Company is considering buying a new mobile ice cream truck. There are two options. Truck-1 costs more

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IAM Appmaths Icecream Company is considering buying a new mobile ice cream truck. There are two options. Truck-1 costs more but it is less expensive to operate; it's cost is TL125,000, whereas Truck-2 costs TL100,000. Since both trucks perform the same function, the firm will choose only one (They are mutually exclusive investments). The life for both types of truck is estimated to be 11 years, during which the net free cash flows for Truck-1 will be TL25,000 per year and those for Truck-2 will be TL20,000 per year. At the end of their economic life, the after-tax salvage values are TL 15,000 for Truck-1 and TL10,000 for Truck-2. Annual net free cash flows take into account depreciation expenses. The company's 10% coupon long-term bonds are selling at par. The company has a beta of 1.2; the risk free rate is 9%, market risk premium is 5%. The company has 40% long- term debt and 60% common equity in its capital structure. Marginal tax rate is 20%. All cash flows and rates are based on nominal values. Calculate the NPV and IRR for each type of truck and decide the one to recommend. (25 Pts)

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