can this question be answered in ****ESAY FORMAT*** please??

Five years ago, Kennedy Trucking Company was consideringthe purchase of 60 new diesel trucks that were 15 percent morefuel-efficient than the ones the firm was using. Mr. Hoffman, thepresident, had found that the company uses an average of 10 milliongallons of diesel fuel per year at a price of $1.25 per gallon. Ifhe can cut fuel consumption by 15 percent, he will save $1,875,000per year (1,500,000 gallons times $1.25). Mr. Hoffman assumed thatthe price of diesel fuel is an external market force that he cannotcontrol and that any increased costs of fuel will be passed on tothe shipper through higher rates endorsed by the InterstateCommerce Commission. If this is true, then fuel efficiency wouldsave more money as the price of diesel fuel rises (at $1.35 pergallon, he would save $2,025,000 in total if he buys the newtrucks). Mr. Hoffman has come up with two possible forecasts asshown nexteach of which he feels has about a 50 percent chance ofcoming true. Under assumption number 1, diesel prices will stayrelatively low; under assumption number 2, diesel prices will riseconsider-ably. Sixty new trucks will cost Kennedy Trucking $5million. Under a special provi-sion from the Interstate CommerceCommission, the allowable depreciation will be 25 percent in year1, 38 percent in year 2, and 37 percent in year 3. The firm has atax rate of 40 percent and a cost of capital of 10percent.

a. First compute the yearly expected costs of dieselfuel for both assumption 1 (relatively low prices)and assumption 2 (high prices) from the following forecasts.Forecast for assumption 1 (low fuel prices):

Probability (same for		Price of Diesel Fuel per Gallon
each year)		Year 1	Year 2	Year 3
.1		$ 0.80	$ 0.90	$ 1.00
.2		1.00	1.10	1.10
.3		1.10	1.20	1.30
.2		1.30	1.45	1.45
.2		1.40	1.55	1.60
Forecast for assumption 2 (high fuel prices):
Probability (same for		Price of Diesel Fuel per Gallon
each year)		Year 1	Year 2	Year 3
.1		$ 1.20	$ 1.50	$ 1.70
.3		1.30	1.70	2.00
.4		1.80	2.30	2.50
.2		2.20	2.50	2.80

b. What will be the dollar savings in diesel expenseseach year for assumption 1 and for assumption 2?

c. Find the increased cash flow after taxes for bothforecasts.

d. Compute the net present value of the truck purchasesfor each fuel forecast assumption and the combined net presentvalue (that is, weigh the NPVs by .5).

e. If you were Mr. Hoffman, would you go ahead with thiscapital investment? f. How sensitive to fuel prices is this capitalinvestment?