Compute the internal rate of return of this investment

Reference no: EM13597712

The Diamond Freight Company has been offered a seven-year contract to haul munitions for the government. Because this contract would represent new business, the company would have to purchase several new heavy-duty trucks at a cost of $350,000 if the contract were accepted. Other data relating to the contract follow:

Annual net cash receipts (before taxes) from the contract $105,000
Salvage value of the trucks at termination of the contract $18,000

The trucks will have a useful life of seven years. To raise money to assist in the purchase of the new trucks, the company will sell several old, fully depreciated trucks for a total selling price of $16,000. The company requires a 16% after-tax return on all equipment purchases. The tax rate is 30%. For tax purposes, the company computes depreciation deductions assuming zero salvage value and using straight-line depreciation on the full cost of the trucks ($350,000). The new trucks would be depreciated over the seven year life.

Required:
(a) Compute the net present value of this investment opportunity. (Round to the nearest dollar amount. Omit the "$" sign in your response.)
Net present value $

(b) Compute the internal rate of return of this investment opportunity. (Round to two decimal places. Omit the "%" sign in your response.)
Internal rate of return %

Reference no: EM13597712

Questions Cloud

What arguments might you present in support of the current : until recently governments were not permitted to recognize increases in the value of investments as revenue. what

Prepare an amortization table for the first six months of : 1.what are the monthly payments for a 30 year traditional mortgage? what are the payments for a 20 year traditional

Robert and chip organized chipper corporation on january 1 : robert and chip organized chipper corporation on january 1 2008. each of these owners invested 100000 cash and received

Garison music emporium carries a wide variety of musical : garison music emporium carries a wide variety of musical instruments sound reproduction equipment recorded music and

Compute the internal rate of return of this investment : the diamond freight company has been offered a seven-year contract to haul munitions for the government. because this

Wellman corporations budgeted balance sheet for the coming : wellman corporations budgeted balance sheet for the coming year shows total assets of 4650000 and total liabilities of

Richmond inc operates a chain of 44 department stores two : richmond inc. operates a chain of 44 department stores. two years ago the board of directors of richmond approved a

Estimate nanovos equity cost of capital use it to determine : nanovo inc. is a manufacturer of low-cost micro batteries for use in a wide variety of compact electronic devices such

Han products manufactures 30000 units of part s-6 each year : han products manufactures 30000 units of part s-6 each year for use on its production line. at this level of activity

User Account

All Pages