OTR Trucking runs a fleet of long-haul trucks and has recently expanded into the Midwest, where it
Question:
OTR Trucking runs a fleet of long-haul trucks and has recently expanded into the Midwest, where it has decided to build a maintenance facility.
This project will require an initial cash outlay of $20 million and will generate annual cash inflows of $4.5 million per year for Years 1 through 3. In Year 4, the project will provide a net negative cash flow of $5,000,000 due to anticipated expansion of and repairs to the facility. During Years 5 through 10, the project will provide cash inflows of $2 million per year.
a. Calculate the project's NPV and IRR where the discount rate is 12 percent. Is the project a worthwhile investment based on these two measures? Why or why not?
b. Calculate the project's MIRR. Is the project a worthwhile investment based on this measure? Why or why not?
Discount RateDepending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
Step by Step Answer:
OTR Trucking has the following project opportunity Using 12 as the appropriate discount rate the cal...View the full answer
Financial Management Principles and Applications
ISBN: 978-0134417219
13th edition
Authors: Sheridan Titman, Arthur J. Keown, John H. Martin
