Example 1.) A company is buying stripped-down truck platforms and then modifying them to customer specifications for resale. A local distributor has requested bids for 10 specially modified trucks each year for the next 5 years, for a total of 50 trucks in all. We plan to buy the truck platforms for $11,000 each. We plan to lease the necess facilities for $19,000 per year. We expect labor and material costs to do the modification works to be $5,000 per truck. The investment necessary in new equipment is $120,000, which will be depreciated straight-line to zero during the life of the project, and can be sold for $40,000 at the end of the project. The project also requires $30,000 initial investment in net working capital, which will be recovered fully at the end of the project. The tax rate is 30%, the discount rate is 15%. (Please avoid the use of Excel. Thank you.)

What is the total present value of all cash flows except for the operating cash flows?

What is the present value annuity factor applicable to the operating cash flow in this project?

What are the annual total cost (exluding depretiation) and the annual depreciation?

What price per truck to bid at least?