FIN 3113 Food Truck Project Cash Flow Mini Case

Recently, Austin Hansen was laid off from his job of 25 years. He and his wife, Anne, decided

to purchase and operate a food truck, serving burgers, fries, and soft drinks near OSU campus.

They decided the call their food truck, Hungry Hansen Hamburgers!

The Hansens were able to find a truck that costs $60,000. However, the truck will require an

additional $20,000 for the wrap and equipment. The truck has an expected life of six years and

will be depreciated using a five-year MACRS life. The expected salvage value for the truck at

the end of its useful life is $20,000. Additionally, the Hansens will need to make an initial

investment of $2,000 for product inventory (e.g., meat, hamburger buns, etc.), which will be

recovered at the end of the life of the project.

During the first year of operation, revenues are expected to be $60,000, increasing to $120,000

per year for years 2-6. Permits and licenses are expected to be $500 per year. Fuel and power

are expected to be $300 per month and the cost of materials is expected to be 40% of revenue.

The tax rate is 25% and the cost of capital (discount rate) is 15%.

Calculate the projects annual free cash flows over the expected life of the equipment.