Question
XYZ, Inc. is considering introducing a new product to add to its line up of existing products. The introduction of the new product will require
XYZ, Inc. is considering introducing a new product to add to its line up of existing products. The introduction of the new product will require the company buy a new fleet of trucks used to sell the products at a total cost of $1,150,000 at the end of three as opposed to seven years. The fleet of trucks lasts 10 years and has a maintenance cost of $150,000 a year, payable at the end of each year. On the other hand, selling the existing products and the new one will increase the revenues of XYZ, Inc. by $600,000 a year, but will add $300,000 to operational costs as well. Assume there are no taxes, inflation is close to zero and XYZ, Inc.s opportunity cost of capital is 6.00%. Suppose the company will continue to replace the fleet of trucks every 10 years and will not use the fleet for the new product regardless of your decision about the existing fleet. What is the Net Present Value of this decision in todays (t = 0) dollars?
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