The trucks will have a useful life of seven years to raise

Assignment Help Accounting Basics

Reference no: EM13595786

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. Net present value
(b)Compute the internal rate of return of this investment opportunity. Internal rate of return

Reference no: EM13595786

Questions Cloud

Decision making across the organization byp2-4 lisa ortega : decision making across the organization byp2-4 lisa ortega is president of ortega riding academy inc. the academys

A student adds 490ml of a 0420m hcl solution to the beaker : a beaker with 195ml of an acetic acid buffer with a ph of 5.000 is sitting on a bench. the total molarity of the acid

During the current year carl equipment stores had net sales : 1.during the current year carl equipment stores had net sales of 600 million a cost of goods sold of 500 million

A bond issued by cornwallis inc 15 years ago has a coupon : a bond issued by cornwallis inc. 15 years ago has a coupon rate of 7 and a face value of 1000. the bond will mature in

The trucks will have a useful life of seven years to raise : the diamond freight company has been offered a seven-year contract to haul munitions for the government. because this

If you knew an electron transfer center in a protein had a : if you knew an electron transfer center in a protein had a reduction potential of -400 mv what would be the most likely

Perfect press inc has just purchased a new binding machine : requirement 1 neal company would like to initiate a management development program for its executives. the program

A particular substance absorbs very strongly at 620 nm : a particular substance absorbs very strongly at 620 nm. at a concentration of 0.100 m this substance has an absorbance

Warner co started a new publication called contest news its : warner co. started a new publication called contest news. its subscribers pay 24 to receive 12 issues. with every new

User Account

All Pages