The Luna Corporation is trying to decide if they should purchase a Truck for hauling material which costs $625,400. The Truck will require $30,600 of working capital and major maintenance in years 3, year 5, and year 7. The major maintenance will cost $50,000 in years 3 and 5 and $65,000 in years 7. The truck will increase the net income by $185,750 in years 1 through 4, and $91,250 in years 5 through 7. At the end of year 7, the company expects to sell the truck for 5% of the cost that they paid for it. Calculate the net present value of the Truck using a 10% rate of return. Show your work and indicate if the Luna Corporation should purchase the Truck. PLEASE PUT IN SIMPLEST FORM
The Luna Corporation is trying to decide if they should purchase a Truck for hauling material which costs $625,400. The Truck will require $30,600 of working capital and major maintenance in years 3, year 5, and year 7. The major maintenance will cost $50,000 in years 3 and 5 and $65,000 in years 7. The truck will increase the net income by $185,750 in years 1 through 4, and $91,250 in years 5 through 7. At the end of year 7, the company expects to sell the truck for 5% of the cost that they paid for it. Calculate the net present value of the Truck using a 10% rate of return. Show your work and indicate if the Luna Corporation should purchase the Truck. PLEASE PUT IN SIMPLEST FORM
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 4P
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1.
The Luna Corporation is trying to decide if they should purchase a Truck for hauling material which costs $625,400.
The Truck will require $30,600 of working capital and major maintenance in years 3, year 5, and year 7.
The major maintenance will cost $50,000 in years 3 and 5 and $65,000 in years 7.
The truck will increase the net income by $185,750 in years 1 through 4, and $91,250 in years 5 through 7.
At the end of year 7, the company expects to sell the truck for 5% of the cost that they paid for it.
Calculate the net present value of the Truck using a 10% rate of return . Show your work and indicate if the Luna Corporation should purchase the Truck.
PLEASE PUT IN SIMPLEST FORM
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