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chapter 14 homework

chapter 14 homework - of Cash Flows Increamental Investment...

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1. The total-cost Approach Item Years 16% Factor Purchase the new truck… Now -30000 1 $(30,000.00) Salvage of the old truck… Now $9,000.00 1 $9,000.00 Annual Cash operating costs 8-Jan -6500 4.34 $(28,236.00) Salvage of the new product 8 4000 0.31 $1.22 $(48,016.00) Keep the old truck: Overhaul needed now… Now -7000 1 $(7,000.00) Annual Cash operating costs 8-Jan -10000 4.34 $(43,440.00) Salvage of the old truck 8 $1,000.00 0.31 $305.00 PV of net cash outflows $(50,135.00) $2,119.00 2. Increamental Cost Approach Item Years 16 % Factor Now -23,000 1 -23,000 Salvage of the old truck Now $9,000 1 9,000 8-Jan $3,500 4.34 15,204 8 $3,000 0.31 915 $2,119.00 Amount of Cash Flows Present Value of Cash Flows Present value of he net cash outflows Net Present value in favor of purchasing new truck Amt of Cash Flows Present Value
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Unformatted text preview: of Cash Flows Increamental Investment in the new truck… Savings in annual cash operating costs. . Difference in salvage value in 8yrs… Net present value in favor of purchasing the new truck… 14-C-4 Years Amount Tax Effect Investment New truck Now ($350,000)-($350,000) 1 ($350,000) Salvage of old truck sale Now 16,000 0.7 11,200 1 11,200 Annual net cash receipts 7-Jan 105,000 0.7 73,500 4.04 296,867 Depreciation deduction 5-Jan 70000 0.3 21,000 3.27 68,754 Replacement of motors 4 ($45,000) 0.7-31,500 0.55-17,388 Salvage from new truck 7 18,000 0.7 12,600 0.35 4,460 NPV $13,893 After Tax Cash Flows 16% factor PV of Cash Flows Since project has positive NPV, the contract should be accepted...
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