Q1. A local delivery company has purchased a delivery truck for $15,000. The truck will be depreciated under MACRS as a five year property. The trucks market value (salvage value) is expected to decrease by $2,500 per year. It is expected that the purchase of the truck will increase revenue by $10,000 annually. The operations and maintenance cost are expected to be $3,000 per year. The firm is in a 40% tax bracket and its MARR is 15%. The company plans to keep the truck for only two years. The Income statement is shown below and attached.
a. Prepare a cash flow statement for this proposal.
b. Determine the equivalent present worth and the internal rate of return.
c. Should the project be approved?
O & M costs
Cost of Goods Sold (COGS)
Earnings Before Interest and Taxes (EBIT)