Your company is considering buying some heavy duty trucks in order to transport heavy equipment and gain more business. Each truck costs $55,000 and your company needs 8 trucks. The dealership will deliver all 8 trucks to your site for $1,000.

Your company thinks that these trucks should be good for 5 years and the salvage value at the end of year 5 will be about $10,000 for each truck. The net working capital change associated with this purchase will be $12,000 in total and it will be recovered at the end of year 5.

After purchasing the trucks, your company projects the gross profits to increase by $180,000 for the first three years, and $150,000 for the rest of the two years.

These trucks qualify as MACRS 5-year property. The depreciation rates are shown below:

MACRS Year Percentage

1 14.29%

2 24.49%

3 17.49%

4 12.49%

5 8.93%

Your companys marginal tax rate is 33%. The appropriate discount rate for your company is 10%.

Should your company buy these trucks? Show the capital budgeting process (Projecting cash flow, Calculating NPV and IRR, and your decision.)