Problem $10-17$B Applying the net present value approach with and without tax

considerations

Craig Pike, the president of Craig's Moving Services Inc., is planning to spend $$800,000$ for new trucks.

He expects the trucks to increase the company's cash inflow as follows.

The company's policy stipulates that all investments must earn a minimum rate of return of $10$ percent.

Required

Round financial figures to nearest whole dollar.

a$.$ Compute the net present value of the proposed purchase. Should Mr$.$ Pike purchase the trucks?

b$.$ Tammy Buckley, the controller, is wary of the cash flow forecast and points out that Mr$.$ Pike failed

to consider that the depreciation on trucks used in this project will be tax deductible. The deprecia$-$

tion is expected to be $$187,500$ per year for the four$-$year period. The company's income tax rate is

$30$ percent per year. Use this information to revise the company's expected cash flow from this

purchase.

c$.$ Compute the net present value of the purchase based on the revised cash flow forecast. Should

Mr$.$ Pike purchase the trucks?

PLEASE INCLUDE EXCEL FORMULAS