A drugstore chain has just purchased a fleet of five pickup trucks to be used for delivery in a particular city. Initial cost was $5000 per truck and the expected life and salvage value is 10 years and $600, respectively. The combine insurance, maintenance, gas and lubrication cost are expected to be $750 for the first year and to increase by $50 per year thereafter, while delivery service will bring an extra $2000 (revenue) in every 2 years for the company. If a return of 10% per year find the total cost of this investment.

A drugstore chain has just purchased a fleet of five pickup trucks to be used for delivery in a particular city. Initial cost was $5000 per truck and the expected life and salvage value is 10 years and $600, respectively. The combine insurance, maintenance, gas and lubrication cost are expected to be $750 for the first year and to increase by $50 per year thereafter, while delivery service will bring an extra $2000 (revenue) in every 2 years for the company. If a return of 10% per year find the total cost of this investment.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 12P

See similar textbooks

Similar questions

A grocery store is considering the purchase of a new refrigeration unit with an Initial Investment of $412,000, and the store expects a return of $100,000 in year one, $72000 in years two and three, $65,000 in years four and five, and $38,000 in year six and beyond, what is the payback period?
A restaurant is considering the purchase of new tables and chairs for their dining room with an initial investment cost of $515,000, and the restaurant expects an annual net cash flow of $103,000 per year. What is the payback period?
A local county government is considering purchasing some dump trucks for thetrash pickups. Each truck will cost $55,000 and have an operating and maintenance cost that starts at $18,000 the first year and increases by $3,000 per yearthereafter. Assume the salvage value is $12,000 at the end of 5 years and theinterest rate is 10%. The equivalent annual cost of owning and operating eachtruck is most nearly(a) $35,974 (b) $32,600(c) $6,956 (d) $37,939
A Construction Company has just purchased a fleet of five truck to be used for deliveryin a particular city. Initial cost was $3000 per truck and the expected life and salvagevalue is 12 years and $700 respectively. The combine insurance, maintenance, gas andlubrication cost are expected to be $1000 for the first year and to increase by $100 peryear thereafter, while delivery service will bring an extra $3000 (revenue) in every 2years for the company. If the interest is 12% per year find the total cost of this investment.
HKYeh Logistics Ltd. is considering purchasing 20 new delivery trucks to increase its delivery capacity. Each truck costs $350,000, and an additional $10,000 is needed for various installation charges such as putting on the logo and other onboard equipment. According to the company's accounting policy, the trucks will be depreciated straight-line to zero over an 8-year period. Each truck is expected to generate an additional yearly revenue of $100,000 and a cash operating expense of $45,000. Each of the trucks is expected to be sold for $70,000 after eight years. HKYeh's yearly tax rate is 16.5% and the required rate of return is 15% per year. As an analyst in the firm's strategic investment division, you are asked to help the board of directors decide whether to go ahead with the project. (а) Compute the initial investment of this project. (b) Compute the present value of after-tax annual operating cash income from this project. (c) Compute the present value of tax savings from…
Hardware Industries is purchasing a new chemical vapor depositor in order to make silicon chips. It will cost $4,900,000 to buy the machine and $100,000 to have it delivered and installed. The machine is expected to work for five years and raise gross profits by $4,730,000 per year, starting at the end of the first year. Other general expenses associated with using the machine are estimated at $950 thousand for each of those years. The machine will be depreciated over five years using the straight-line method. The marginal tax rate is 40%. What are the incremental free cash flows associated with the new machine in year 0 of the project? Assume the machine is purchased in year 0 and starts depreciating in year 1 of the project.
Nancy's Notions pays a delivery firm to distribute its products in the metro area. Delivery costs are $36,000 per year. Nancy can buy a used truck for $8,000 that will be adequate for the next 3 years. Operating and maintenance costs are estimated to be $27,000 per year. At the end of 3 years, the used truck will have an estimated salvage value of $2,000. Nancy's MARR is 24%/year. a. What is this investment's internal rate of return? IRR = % Do all calculations to 5 decimal places and round final answer to the whole number. The tolerance is +/- 1.
A Cookie Company has negotiated to introduce a new cookie for 6 years. The cookie would be purchased in boxes from a manufacturer for $100 per box and sold to supermarkets for $200 per box. Annual sales is expected to be 5 000 boxes. The estimated annual cash expenses to sell the new product would be $180,000. The cost of the equipment to package the cookies is $300 000, and the working capital needed is $400 000. After 5 years, the equipment will need to be repaired and maintained at a cost of $25 000. After 6 years, the residual value of equipment will be $50 000. The working capital would be released at the end of 6-year period. The rate of discount of the company is 16%. Required: Compute net present value (NPV) of the new product. Do not compute income tax. Would you recommend the company proceed with this new venture?
Nancy’s Notions pays a delivery firm to distribute its products in the metro area. Delivery costs are $30,000 per year. Nancy can buy a used truck for $10,000 that will be adequate for the next 3 years. Operating and maintenance costs are estimated to be $25,000 per year. At the end of 3 years, the used truck will have an estimated salvage value of $3,000. Nancy’s MARR is 24%/year. Solve, a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on present worth? c. Should Nancy buy the truck?
Nancy’s Notions pays a delivery firm to distribute its products in the metro area. Delivery costs are $30,000 per year. Nancy can buy a used truck for $10,000 that will be adequate for the next 3 years. Operating and maintenance costs are estimated to be $25,000 per year. At the end of 3 years, the used truck will have an estimated salvage value of $3,000. Nancy’s MARR is 24%/year. Solve, a. What is the annual worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on annual worth? c. Should Nancy buy the truck?
A Cookie Company has negotiated to introduce a new cookie for 6 years. The cookie would be purchased in boxes from a manufacturer for $100 per box and sold to supermarkets for $200 per box. Annual sales is expected to be 5 000 boxes. The estimated annual cash expenses to sell the new product would be $180,000. The cost of the equipment to package the cookies is $300 000, and the working capital needed is $400 000. After 5 years, the equipment will need to be repaired and maintained at a cost of $25 000. After 6 years, the residual value of equipment will be $50 000. The working capital would be released at the end of 6-year period. The rate of discount of the company is 16%. Required: Compute net present value (NPV) of the new product. Do not compute income tax
Nancy’s Notions pays a delivery firm to distribute its products in the metro area. Shipping costs are $30,000 per year. Nancy can buy a used truck for $10,000 that will be adequate for the next 3 years. Operating and maintenance costs are estimated to be $25,000 per year. At the end of 3 years, the used truck will have an estimated salvage value of $3,000. Nancy’s MARR is 24%/yr. Solve, a. What is the internal rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on internal rate of return? c. Should Nancy buy the truck?