P$14$C$-$H$1$

The William Company has been offered a seven year contract to haul iron ore. Since this

contract would represent new business, the company would have to purchase new trucks costing

a total of $$350,000$ if the contract is accepted. Other data relating to the contract:

With the motors being replaced after four years, the trucks will have a useful life of seven years.

To raise money to help purchase the new trucks, the company will sell several old, fully

depreciated trucks for a total selling price of $$16,000.$ The company uses MACRS to compute

depreciation for tax purposes and requires a $16\%$ after$-$tax return on all equipment purchases.

The tax rate is $30\%.$ The trucks would be in the MACRS five$-$year property class.

REQUIRED:

$1.$ Compute the net present value of this investment opportunity. Round all dollar amounts to the nearest whole dollar.

$2.$ Would you recommend that the contract be accepted? Why or Why not?