Submitted this question before but got the wrong answer, Our Professor Added this comment to help solve it:

(Diamond Freight works like the Pizza Oven example posted under Study Tools and what we did in class, but there is one added twist - the sale of the old trucks.

You still depreciate the full the cost of the new trucks. However, when figuring out the initial cost (i.e. the amount you subtract to calculate NPV), you must deduct the proceeds from the sale of the old trucks (after tax) from the cost of the new ones.

For example, assume the new trucks cost $100,000, the old trucks were sold for $20,000 and that the tax rate is 30%. The cash received from the sale of the old trucks woud be [$20,000 x (1 - 30%)] or $14,000. Thus, the net cost of the new trucks would be ($100,000 - $14,000) or $86,000.) Please show steps : )

The Diamond Freight Company has been offered a seven-year contract to haul munitions for the government. Because this contract would represent new business, the company would have to purchase several new heavy-duty trucks at a cost of $350,000 if the contract were accepted. Other data relating to the contract follow:

Annual net cash receipts (before taxes) from the contract	$105,000
Salvage value of the trucks at termination of the contract	$18,000

The trucks will have a useful life of seven years. To raise money to assist in the purchase of the new trucks, the company will sell several old, fully depreciated trucks for a total selling price of $16,000. The company requires a 16% after-tax return on all equipment purchases. The tax rate is 30%. For tax purposes, the company computes depreciation deductions assuming zero salvage value and using straight-line depreciation on the full cost of the trucks ($350,000). The new trucks would be depreciated over the seven year life.

Required:

(a)	Compute the net present value of this investment opportunity. (Round to the nearest dollar amount. Omit the "$" sign in your response.)

Net present value

$

(b)	Compute the internal rate of return of this investment opportunity. (Round to two decimal places. Omit the "%" sign in your response.)

Internal rate of return

%