Question
The Luna Corporation is trying to decide if they should purchase a Truck for hauling material which costs $625,400. The Truck will require $30,600 of
The Luna Corporation is trying to decide if they should purchase a Truck for hauling material which costs $625,400.
The Truck will require $30,600 of working capital and major maintenance in years 3, year 5, and year 7.
The major maintenance will cost $50,000 in years 3 and 5 and $65,000 in years 7.
The truck will increase the net income by $185,750 in years 1 through 4, and $91,250 in years 5 through 7.
At the end of year 7, the company expects to sell the truck for 5% of the cost that they paid for it.
Calculate the net present value of the Truck using a 10% rate of return. Show your work and indicate if the Luna Corporation should purchase the Truck.
PLEASE PUT IN SIMPLEST FORM
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started