Schedule of incremental cash flows for the entire lifespan

Assignment Help Accounting Basics

Reference no: EM131761588

Question: We're receiving considerable pressure to hurry our incorporation of hybrid electric vehicles (HEVs) into our delivery fleet. Senior management feels this will be both a cost-effective measure and will result in valuable publicity.

Recent plans include the addition of 3,500 HEVs at a total price tag of $250 million. To maintain these new vehicles, our maintenance facilities have estimated that they will need to invest in an additional $20 million in equipment to handle the new technology and our refueling stations will need an additional $4 million to adapt to the new vehicles.

We are currently estimating that the new vehicles will save 2.6 million gallons of fuel every year. At an average price of $3.50 / gallon, this equates to $9.1 million in fuel-related cost savings every year.

Unfortunately, the new vehicles are more maintenance prone and will incur an additional $10,000 in maintenance expenses annually. Additionally, these new vehicles are expected to have a lifespan of only 15 years, significantly shorter than our current 20 year fleet. We will continue our policy of destroying our used cars, so they will have no resale value. Only $210 million will be written off in depreciation by that point.

Additionally, the additional publicity could be a significant benefit. Management feels the use of hybrid vehicles could be a major marketing point. Combined with a $20 million marketing campaign each year, they estimate an additional 2% increase in sales.

Of course, it is our job to find out if this idea is cost-effective. To that end, please prepare a pro-forma income statement and balance sheet for the next two years. Additionally, please prepare an annual cash budget for the next two years and a schedule of incremental cash flows for the entire lifespan of this project.

Soon we will need to assess if the addition of hybrid vehicles to our fleet will be cost-effective, but in the meantime we need to know if we can support the cost of this upgrade. How much new capital and/or cash will be required to support this adoption?

Reference no: EM131761588

Questions Cloud

How did you act when performing the breach : Discuss your project design and clearly identify the activity of interest.pply Goffman's dramaturgical approach.

Define april transactions using a perpetual inventory system : Journalize the April transactions using a perpetual inventory system

How does reputation help a company to be more competitive : What impact could a poor quality product have on a company? How does reputation help a company to be more competitive

What is an example of a causal-comparative research question : a. What are the reasons a school would include computer-based simulations in their instructional methods?

Schedule of incremental cash flows for the entire lifespan : Of course, it is our job to find out if this idea is cost-effective. To that end, please prepare a pro-forma income statement and balance sheet.

How is it a reflection of history : Analyze how this part of your own life is shaped by wider social forces. How is it a reflection of "history" (as Mills would say). culture, and/or society?

Biggest impact on business over : So choose one technology and make a one paragraph argument for why it will have the biggest impact on business over the next 5 to 10 years.

Identify issues to manage food and beverage waste : Identify three issues to manage food and beverage waste and recycling operations and suggest solutions. Give an example of some organization

Prepare the journal entries to record these transactions : Prepare the journal entries to record these transactions on the books of Harwick Co. under a perpetual inventory system

User Account

All Pages