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Your firm is considering a new project to improve its sales channels. Buying a new truck for $100.000 to deliver more goods to customers will
Your firm is considering a new project to improve its sales channels. Buying a new truck for $100.000 to deliver more goods to customers will increase sales $35,000 and costs of goods sold $12,000 per year. The cost of the truck will be paid in 2 installments. The first installment will take place at the time of the purchase at year 0, at an amount of $60.000. The second installment will be paid at the end of year 1, at an amount of $40.000. The truck will be depreciated straight-line to $10,000 at the end of year 5. Your company will be able to sell the truck for $8,000 when the project is completed. Your company will be able to reduce working capital by $70,000 at the beginning of the project. The tax rate is 30% and discount rate is 10%. a) Please find NPV of the project. b) Please find IRR of the project. Is there a conflict or agreement with the NPV and IRR rules? How do you explain the situation? c) Would you do the project? Why
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