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February 27, 2015

Homework Help: fin534

Posted by jan on Monday, May 30, 2011 at 11:53am.

In order to expand its business, Auto Parts Distributing, Inc., is considering the purchase of four pickup trucks at a total cost of $180,000. The company expects to keep these trucks for four years, then sell them. The company expects these trucks to generate a after tax net cash flow of $95,000 in year 1, $90,000 in year 2, $85,000 in year 3, $80,000 in year 4, and to sell after four years for a total price of $30,000 non-taxable. The company’s marginal tax rate is 35% and its cost of capital is 12%.

Calculate:

a. After tax cash flow for each year 1 thru 4 (ignore depreciation)
b. Payback period
c. Profitability Index
d. Net Present Value
e. Internal Rate of Return

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