answer needed for b Carson Trucking is considering whether to expand its re cent
ID: 2812269 • Letter: A
Question
answer needed for b
Carson Trucking is considering whether to expand its re center. The expansion requires the expenditure of $10 mill service equipment and would generate annual net cash inflo reduced costs of operations equal to $2.5 million per year f the next eight years. In year eight the firm will also get flow equal to the salvage value of the equipment million. Calculate the project's NPV using the following discount regional service inflows from back a c ash which is valued at $1 rates: a. b. 9% 13%Explanation / Answer
Solved both a and b, first solving b. part as required.
b.
NPV = $2,373,085.60
OR
NPV = $2.37 millions
Discount rate = R =
13.00%
Present Values (PV)
Year
Cash flows
Discount factor or PV factors = Df = 1/(1+R)^Year
PV of cash flows = Cash flows x Df
0
-10,000,000.00
1.000000
-10,000,000.0000
1
2,500,000.00
0.884956
2,212,389.3805
2
2,500,000.00
0.783147
1,957,866.7084
3
2,500,000.00
0.693050
1,732,625.4057
4
2,500,000.00
0.613319
1,533,296.8192
5
2,500,000.00
0.542760
1,356,899.8400
6
2,500,000.00
0.480319
1,200,796.3186
7
2,500,000.00
0.425061
1,062,651.6094
8
3,500,000.00
0.376160
1,316,559.5160
Total of PV = NPV =
$2,373,085.60
Cash flow in year 8 will be = $2.5 regular cash flow + $1 million salvage value = $3.5 million or $3,500,000
------------------
Answer for a.
NPV = $4,338,914.07
OR
NPV = $4.34 Million
Discount rate = R =
9.00%
Present Values (PV)
Year
Cash flows
Discount factor or PV factors = Df = 1/(1+R)^Year
PV of cash flows = Cash flows x Df
0
-10,000,000.00
1.000000
-10,000,000.0000
1
2,500,000.00
0.917431
2,293,577.9817
2
2,500,000.00
0.841680
2,104,199.9832
3
2,500,000.00
0.772183
1,930,458.7002
4
2,500,000.00
0.708425
1,771,063.0277
5
2,500,000.00
0.649931
1,624,828.4657
6
2,500,000.00
0.596267
1,490,668.3172
7
2,500,000.00
0.547034
1,367,585.6121
8
3,500,000.00
0.501866
1,756,531.9789
Total of PV = NPV =
$4,338,914.07
Discount rate = R =
13.00%
Present Values (PV)
Year
Cash flows
Discount factor or PV factors = Df = 1/(1+R)^Year
PV of cash flows = Cash flows x Df
0
-10,000,000.00
1.000000
-10,000,000.0000
1
2,500,000.00
0.884956
2,212,389.3805
2
2,500,000.00
0.783147
1,957,866.7084
3
2,500,000.00
0.693050
1,732,625.4057
4
2,500,000.00
0.613319
1,533,296.8192
5
2,500,000.00
0.542760
1,356,899.8400
6
2,500,000.00
0.480319
1,200,796.3186
7
2,500,000.00
0.425061
1,062,651.6094
8
3,500,000.00
0.376160
1,316,559.5160
Total of PV = NPV =
$2,373,085.60
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