NOA CORP. wants to buy 3 trucks for her employees. Each truck costs $40,000. The trucks...
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NOA CORP. wants to buy 3 trucks for her employees. Each truck costs $40,000. The trucks will be depreciated to their salvage value of $10,000 each over three years. The company will require an immediate investment in working capital of $5,000. NOA CORP. has a tax rate of 40% and uses a discount rate of 10% for all projects. The company estimates that trucks will result in incremental truck ride revenue of $50,000 in the first year, $55,000 in the second year and $60,000 in the third year. The cost of gasoline and maintenance for the trucks will be 20% of sales and the cost of insurance will be $8,000 per year. At the end of three years, the trucks will be sold for their salvage value. What is the company's initial cash flow (CFO)? What are the company's annual operating cash flows (OCF) for years 1, 2 and 3? What are the company's terminal cash flow (TCF)? Using NPV as the decision rule, should the expansion be undertaken? Using IRR as the decision rule, should the expansion be undertaken? NOA CORP. wants to buy 3 trucks for her employees. Each truck costs $40,000. The trucks will be depreciated to their salvage value of $10,000 each over three years. The company will require an immediate investment in working capital of $5,000. NOA CORP. has a tax rate of 40% and uses a discount rate of 10% for all projects. The company estimates that trucks will result in incremental truck ride revenue of $50,000 in the first year, $55,000 in the second year and $60,000 in the third year. The cost of gasoline and maintenance for the trucks will be 20% of sales and the cost of insurance will be $8,000 per year. At the end of three years, the trucks will be sold for their salvage value. What is the company's initial cash flow (CFO)? What are the company's annual operating cash flows (OCF) for years 1, 2 and 3? What are the company's terminal cash flow (TCF)? Using NPV as the decision rule, should the expansion be undertaken? Using IRR as the decision rule, should the expansion be undertaken?
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To calculate the initial cash flow CFO we need to subtract the initial investment from the initial c... View the full answer
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