A firm is evaluating an investment in a fleet of vehicles that will be used for 10 years. The vehicles would cost $70 million. According to the IRS, the useful life of these vehicles is 5 years, and the firm will depreciate them using straight-line depreciation. The firm expects to generate additional revenue of $30 million per year using these vehicles. At the same time, the firm expects to pay approximately $10 million to maintain them. However, the firm anticipates being able to utilize them to aid in other endeavors, saving approximately $5 million per year. At the end of the 10-year period, the firm expects to be able to sell the vehicles for $10 million. The company pays taxes at a 40% rate. The firm anticipates that its cash needs will increase with the vehicles in use, so it plans to keep an additional $20 million in cash for the next 10 years. 

What is the NPV of this investment if the firm has a 14% cost of capital?

Answer rating: 100% (QA)

To calculate the Net Present Value NPV of the investment we need to find the present value of all the cash flows associated with the investment over t... View the full answer