Homework Help is Here – Start Your Trial Now!
Business
Accounting
The William Company has been offered a seven year contract to haul iron ore. Since this contract would represent new business, the company would have to purchase new trucks costing a total of $350,000 if the contract is accepted. Other data relating to the contract: Net annual cash receipts (before taxes) from the contract s105,000 Cost to replace the truck motors in four years 45,000 Salvage value of the trucks at the end of the contract 18,000 With the motors being replaced after four years, the trucks will have a useful life of seven years. To raise money to help purchase the new trucks, the company will sell several old, fully depreciated trucks for a total selling price of $16,000. The company uses MACRS to compute depreciation for tax purposes and requires a 16% after-tax return on all equipment purchases. The tax rate is 30%. The trucks would be in the MACRS five-year property class.

The William Company has been offered a seven year contract to haul iron ore. Since this contract would represent new business, the company would have to purchase new trucks costing a total of $350,000 if the contract is accepted. Other data relating to the contract: Net annual cash receipts (before taxes) from the contract s105,000 Cost to replace the truck motors in four years 45,000 Salvage value of the trucks at the end of the contract 18,000 With the motors being replaced after four years, the trucks will have a useful life of seven years. To raise money to help purchase the new trucks, the company will sell several old, fully depreciated trucks for a total selling price of $16,000. The company uses MACRS to compute depreciation for tax purposes and requires a 16% after-tax return on all equipment purchases. The tax rate is 30%. The trucks would be in the MACRS five-year property class.

EBK CFIN
EBK CFIN
6th Edition
ISBN:9781337671743
Author:BESLEY
Publisher:BESLEY
Chapter10: Project Cash Flows And Risk
Section: Chapter Questions
Problem 13PROB
See similar textbooks
icon
Related questions
Question
P14C-H1 The William Company has been offered a seven year contract to haul iron ore. Since this contract would represent new business, the company would have to purchase new trucks costing a total of $350,000 if the contract is accepted. Other data relating to the contract: Net annual cash receipts (before taxes) from the contract $105,000 Cost to replace the truck motors in four years 45,000 Salvage value of the trucks at the end of the contract 18,000 With the motors being replaced after four years, the trucks will have a useful life of seven years. To raise money to help purchase the new trucks, the company will sell several old, fully depreciated trucks for a total selling price of $16,000. The company uses MACRS to compute depreciation for tax purposes and requires a 16% after-tax return on all equipment purchases. The tax rate is 30%. The trucks would be in the MACRS five-year property class. REQUIRED: 1. Compute the net present value of this investment opportunity. Round all dollar amounts to the nearest whole dollar. 2. Would you recommend that the contract be accepted? Why or Why not?
Transcribed Image Text:P14C-H1 The William Company has been offered a seven year contract to haul iron ore. Since this contract would represent new business, the company would have to purchase new trucks costing a total of $350,000 if the contract is accepted. Other data relating to the contract: Net annual cash receipts (before taxes) from the contract $105,000 Cost to replace the truck motors in four years 45,000 Salvage value of the trucks at the end of the contract 18,000 With the motors being replaced after four years, the trucks will have a useful life of seven years. To raise money to help purchase the new trucks, the company will sell several old, fully depreciated trucks for a total selling price of $16,000. The company uses MACRS to compute depreciation for tax purposes and requires a 16% after-tax return on all equipment purchases. The tax rate is 30%. The trucks would be in the MACRS five-year property class. REQUIRED: 1. Compute the net present value of this investment opportunity. Round all dollar amounts to the nearest whole dollar. 2. Would you recommend that the contract be accepted? Why or Why not?
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Accounting for Long-Term contracts
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
EBK CFIN
EBK CFIN
Finance
ISBN:
9781337671743
Author:
BESLEY
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Financial Accounting Intro Concepts Meth/Uses
Financial Accounting Intro Concepts Meth/Uses
Finance
ISBN:
9781285595047
Author:
Weil
Publisher:
Cengage
Fundamentals Of Financial Management, Concise Edi…
Fundamentals Of Financial Management, Concise Edi…
Finance
ISBN:
9781337902571
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
SEE MORE TEXTBOOKS