Koch Limited is about to replace its existing fleet of diesel trucks with electric ones. The...

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Koch Limited is about to replace its existing fleet of diesel trucks with electric ones. The new electric truck will cost $100,000 and has a useful life of 10 years, at which time the truck will be worthless. However, Koch Limited has the practice of replacing its fleet every 5 years, and expects to sell the electric truck for $30,000 then. Due to the efficiency of the new truck, the company expects to generate additional $20,000 revenue per year over the next five years. Additionally, the fuel and maintenance costs for the electric truck are $5,000 lower each year than diesel truck. Assume straight-line depreciation and a discount rate of 10% and ignore tax. Calculate a. The accounting rate of return of the new electric truck. b. The payback period for the new electric truck. c. The net present value of the new electric truck. 2 Koch Limited is about to replace its existing fleet of diesel trucks with electric ones. The new electric truck will cost $100,000 and has a useful life of 10 years, at which time the truck will be worthless. However, Koch Limited has the practice of replacing its fleet every 5 years, and expects to sell the electric truck for $30,000 then. Due to the efficiency of the new truck, the company expects to generate additional $20,000 revenue per year over the next five years. Additionally, the fuel and maintenance costs for the electric truck are $5,000 lower each year than diesel truck. Assume straight-line depreciation and a discount rate of 10% and ignore tax. Calculate a. The accounting rate of return of the new electric truck. b. The payback period for the new electric truck. c. The net present value of the new electric truck. 2

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a The accounting rate of return is calculated by dividing the average annual profit by the average investment In this case the average annual profit i... View the full answer