Compute the after-tax operating cash flows for each model

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Reference no: EM13947539

Capital Investment with Competing Projects (with Tax Effects)

Weins Postal Service (WPS) has decided to acquire a new delivery truck. The choice has been narrowed to two models. The following information has been gathered for each model:

	Custom	Deluxe
Acquisition cost	$20,000	$25,000
Annual operating costs	$ 3,500	$ 2,000
Depreciation method	MACRS	MACRS
Expected salvage value	$ 5,000	$ 8,000

WPS's cost of capital is 14 percent. The company plans to use the truck for five years and then sell it for its salvage value. Assume the combined state and fed- eral income tax rate is 40 percent.

Required

1. Compute the after-tax operating cash flows for each model.

2. Compute the NPV for each model, and make a recommendation.

Reference no: EM13947539

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