Question
Flag ABC Co has a 5-year-old delivery truck that cost $80,000. The current value of the truck is about $25,000 and a book value of
Flag ABC Co has a 5-year-old delivery truck that cost $80,000. The current value of the truck is about $25,000 and a book value of $4,000 and would be fully depreciated by the end of next year. The estimated selling cost is $2,000. The old truck has annual repair and maintenance costs of about $8,000 per year. It is estimated that the old truck will last another 6 years but will require an additional $15,000 for a major overhaul in three years from now. The truck should be worth about $8,000 at the end of the next six years. The truck gets about 6 miles per gallon. There are two employees who operate the truck: a driver that earns $14 per hour and a laborer who helps with deliveries that earns $12 per hour (fully burdened). These drivers work a total of 2,000 hours per year and drive about 36,000 miles per year. ABC is considering the purchase of a new fuel-efficient truck with a lift gate. The new truck will save about 200 hours per year delivery time. The new truck is rated to get 10.5 miles per gallon. It has a 5-year warranty and thus should have no repairs for the first 5 years but will require normal maintenance of about $1,000 per year. Repair and maintenance costs in the sixth year should be around $6,000. The new truck will cost $92,000 plus tax, license, dealer prep, and delivery charges of $7,500. Additionally, ABC would spend $2,000 having the company logo and colors painted on the truck. ABC would plan on keeping the truck for 6 years and then selling it. It is estimated that the six-year-old truck will be worth $45,000 and the selling cost will be $3,000. ABC will depreciate the truck using 5-year MACRS. Fuel cost averaged $2.40 per gallon last year, but it is estimated that fuel costs will increase by about 10% per year. Wages should rise by about 5% per year to stay ahead of inflation. The cost of capital (WACC) for ABC is 15%. The effective tax rate for ABC is 35%.
I know Chegg only allows 4 questions to be asked at a time but these all tie together. I've asked this previously but whoever did it before got all the wrong answers. Q1. What is the taxable cash income in year 1? (Show as negative number if a loss.) Q2. What is the taxable cash income in year 2? (Show as negative number if a loss.) Q3. What is the taxable cash income in year 3? (Show as negative number if a loss.) Q4. What is the taxable cash income in year 4? (Show as negative number if a loss.) Q5. What is the taxable cash income in year 5? (Show as negative number if a loss)
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