capital Budgeting Theory

Ace Movers is thinking about buying a truck. In the first year it expects to earn $9,000 and then during the second year it will be retro-fitted so it can burn natural gas. After that it wil earn $14,000 per year for third, fourth and fifth years. Its cash flows can be summarized as follows Year Cash Flow 0 -26,000 1 9,000 2 6,000 3 14,000 4 14,000 5 14,000 Ace Mover's cost of capital (the interest rate on money brought into the firm) is 6.00%. Because the loan will be paid off as soon as possible this rate can be considered the 5 14,000 Ace Mover's cost of capital (the interest rate on money brought into the firm) is 6.00%. Because the loan will be paid off as soon as possible this rate can be considered the reinvestment rate." Question 1 (1 point) What is the payback period for the truck? Question 2 (1 point) What is the discounted payback period for the truck? Question 3 (1 point) What is the net present value for the truck? Question 4 (1 point) What is the internal rate of return for the truck? Please carry out your answer to two digits to the right of the decimal place. Question 5 (1 point) What is the modified internal rate of return for the truck? Please carry out your answer to two digits to the right of the decimal place. Question 6 (1 point) Suppose that investors decided that they required a 10:00% cost of capital instead of 6.00%. Would the truck be a good investment? a.Yes b. No