Question
In: Finance
Pirate Company produces planks. They are currently considering replacing their fleet of delivery trucks. Replacing the...
Pirate Company produces planks. They are currently considering replacing their fleet of delivery trucks. Replacing the old trucks will require an initial outlay of $300,000 but Pirate Company will save $200,000 per year in fuel costs over the 6 year life of the project. The trucks will be depreciated at a cost of $50,000 per year. If the tax rate is 40% and WACC is 8%, should Pirate Company replace their current fleet of delivery trucks? Use the NPV criteria to make your decision.
Solutions
Expert Solution
Solution :
Pirate Company should replace their current fleet of delivery trucks as the NPV of replacement is positive at $ 347,203.15
The NPV of replacement = $ 347,203.15
Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.
jeff jeffy answered 1 year agoRelated Solutions
Jim bob Co. is considering replacing its existing fleet of trucks with new trucks. Estimates for...
Jim bob Co. is considering replacing its existing fleet of
trucks with new trucks. Estimates for the next three years are as
follows:
Old trucks
New trucks
Average annual sales
$500,000
$520,000
Annual operating costs
100,000
75,000
Original costs of old trucks
100,000
--
Remaining book value of old trucks
10,000
--
List price of new trucks
--
120,000
Remaining life
3 years
--
Expected life
--
3 years
Disposal value now
$10,000
---
Disposal value in 3 years
$...
In 2015, a delivery company purchased a fleet of local delivery trucks for $175,000. These are...
In 2015, a delivery company purchased a fleet of local delivery
trucks for $175,000. These are 5 year assets. This company pays
federal tax at a rate of 23% per year. (a) Develop a MACRS
depreciation table for this asset, and compute the post-tax income
of this company using their gross sales income given below. (b) Is
this a good investment if MARR = 25% per year? (c) The company sold
the trucks in September 2020 for $18,000. What are...
Keith’s Trucking Company is replacing part of their fleet of trucks by purchasing them under a...
Keith’s Trucking Company is replacing part of their fleet of
trucks by purchasing them under a note agreement with Kenworthy on
January 1, 2018. The note agreement will require $6 million in
annual payments starting on December 31, 2018 and continuing for a
total of six years (final payment December 31, 2023). Kenworthy
will charge Keith’s Trucking the market interest rate of 8%
compounded annually. (Round to the nearest dollar).
A). (2-1/2 pts) How much will Keith’s Trucking record as...
A company has just invested in a fleet of 12 new delivery trucks. They are identical...
A company has
just invested in a fleet of 12 new delivery trucks. They are
identical in terms of features, capability, and price. The
companies operation involves deliveries to
long haul' destinations, and
'short haul' destinations. The company assumes each truck to have a
useful life of 5 years. Experience has shown that the 'long haul'
trucks typically
develop problems, or wear
out, twice as fast as the 'short haul' trucks, primarily due to the
significantly higher number of miles...
Hoi Chong Transport, Ltd. operates a fleet of delivery trucks in Singapore. The company has determined...
Hoi Chong Transport, Ltd. operates a fleet of delivery trucks in
Singapore. The company has determined that if a truck is driven
150,000 kilometres during a year, the average operating cost is
13.1 cents per kilometre. If a truck is driven only 75,000
kilometres during a year, the average operating cost increases to
15.0 cents per kilometre. (The Singapore dollar is the currency
used in Singapore.)
Required:
1.
Using the high-low method, estimate the variable and fixed cost
elements of...
Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined...
Hoi Chong Transport, Ltd., operates a fleet of delivery trucks
in Singapore. The company has determined that if a truck is driven
108,000 kilometers during a year, the average operating cost is
11.9 cents per kilometer. If a truck is driven only 72,000
kilometers during a year, the average operating cost increases to
13.7 cents per kilometer.
Required:
1. Using the high-low method, estimate the variable operating
cost per kilometer and the annual fixed operating cost associated
with the fleet...
Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined...
Hoi Chong Transport, Ltd., operates a fleet of delivery trucks
in Singapore. The company has determined that if a truck is driven
105,000 kilometers during a year, the average operating cost is
11.4 cents per kilometer. If a truck is driven only 70,000
kilometers during a year, the average operating cost increases to
13.4 cents per kilometer. Required:
1. Using the high-low method, estimate the variable and fixed
cost elements of the annual cost of the truck operation. (Do not...
Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined...
Hoi Chong Transport, Ltd., operates a fleet of delivery trucks
in Singapore. The company has determined that if a truck is driven
102,000 kilometers during a year, the average operating cost is
11.3 cents per kilometer. If a truck is driven only 68,000
kilometers during a year, the average operating cost increases to
12.9 cents per kilometer.
Required:
1. Using the high-low method, estimate the variable operating
cost per kilometer and the annual fixed operating cost associated
with the fleet...
Your company is contemplating replacing their current fleet of delivery vehicles with Nissan NV vans. You...
Your company is contemplating replacing their current fleet of
delivery vehicles with Nissan NV vans. You will be replacing 5
fully-depreciated vans, which you think you can sell for $3,400
apiece and which you could probably use for another 2 years if you
chose not to replace them. The NV vans will cost $33,000 each in
the configuration you want them, and can be depreciated using MACRS
over a 5-year life. Expected yearly before-tax cash savings due to
acquiring the...
Your company is contemplating replacing their current fleet of delivery vehicles with Nissan NV vans. You...
Your company is contemplating replacing their current fleet of
delivery vehicles with Nissan NV vans. You will be replacing 5
fully-depreciated vans, which you think you can sell for $4,100
apiece and which you could probably use for another 2 years if you
chose not to replace them. The NV vans will cost $29,850 each in
the configuration you want them, and can be depreciated using MACRS
over a 5-year life. Expected yearly before-tax cash savings due to
acquiring the...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- "Ethical Considerations" Please respond to the following: Reflect upon the responsibilities placed on auditors by the...
- A Japanese company has a bond outstanding that sells for 93 percent of its ¥100,000 par...
- What is the difference among the principles of modularization, abstraction, encapsulation, and separation of interface and...
- An investment project costs $20,100 and has annual cash flows of $4,400 for six years. ...
- PUT IN JAVA PROGRAMMING The StockB class: Design a class named StockB that contains the following...
- Draw a DFA for the following ( ∑ = {0,1}): Set of all strings with.
- In the article from Forbes notes that the goal of a leader is not to clone...
ADVERTISEMENT