You are considering purchasing an ice cream truck to sell ice cream outside the dorms at...

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You are considering purchasing an ice cream truck to sell ice cream outside the dorms at UCCS. You expect to be in business for three years and want to see how the business stacks up. The truck you're looking at is very old and on its last legs. It will cost $2,000 to purchase, $1,000 to repair the transmission, $400 for new tires, and $200 to register it and get plates. It will last for three years and you will depreciate it on a straight-line basis to zero over that time. At Year 3, it will be sold for scrap for $500. You will need to purchase inventory: eight different tubs of ice cream, each costing $150. Each tub holds 50 scoops, an of course at the end of each year each tub has no residual value (you either had sold out of that flavor, and whatever is leftover goes bad); every year you replace all 8 tubs. Therefore, you will buy ice cream in Years 0, 1, & 2. You expect to sell 250 scoops in year one, 350 in year two, and 400 in year 3. You will sell each scoop for $5. But, regardless of what you sold, you still had to begin each year with eight tubs of ice cream. You want to model this potential new business out three years. Your tax rate is 30%. Capital Budgeting Template Item Sales Units Net Revenue Per Unit Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Total Sales Revenue Other Operating Expenses Depreciation EBIT Implied Taxes Depreciation +/- A Net Operating Working Capital +/- A Net Operating Long Term Capital Free Cash Flow You are considering purchasing an ice cream truck to sell ice cream outside the dorms at UCCS. You expect to be in business for three years and want to see how the business stacks up. The truck you're looking at is very old and on its last legs. It will cost $2,000 to purchase, $1,000 to repair the transmission, $400 for new tires, and $200 to register it and get plates. It will last for three years and you will depreciate it on a straight-line basis to zero over that time. At Year 3, it will be sold for scrap for $500. You will need to purchase inventory: eight different tubs of ice cream, each costing $150. Each tub holds 50 scoops, an of course at the end of each year each tub has no residual value (you either had sold out of that flavor, and whatever is leftover goes bad); every year you replace all 8 tubs. Therefore, you will buy ice cream in Years 0, 1, & 2. You expect to sell 250 scoops in year one, 350 in year two, and 400 in year 3. You will sell each scoop for $5. But, regardless of what you sold, you still had to begin each year with eight tubs of ice cream. You want to model this potential new business out three years. Your tax rate is 30%. Capital Budgeting Template Item Sales Units Net Revenue Per Unit Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Total Sales Revenue Other Operating Expenses Depreciation EBIT Implied Taxes Depreciation +/- A Net Operating Working Capital +/- A Net Operating Long Term Capital Free Cash Flow

Answer rating: 100% (QA)

To model the potential ice cream truck business over three years we need to calculate the annual cas... View the full answer