Reference no: EM131012624

Your firm, Agrico products, is concidering a tractor that would have a cost of $36,000, would increase pre tax operating cash flows before taking account of a cost of depreciation by $12,000 per year, and would be depreciated on a straight line basis to zero over 5 years at a rate of $7200 per year beginning the first year. (Thus annual cash flows would be $12000 before taxes pluss the tax savings that result from $7200 of depreciation.) The managers disagree about weather the tractor would last 5 years. The controller insists that she knows of tractors that have lasted only 4 years. The treasurer agrees with the controller, but he argues that most tractors do give 5 years of service. The service manager then states that some last for as long as 8 years. Given this discussion, the CFO asks you to prepare a scenario analysis to determine the importance of the tractors life on the . Use 40% marginal federal-plus-state tax rate, a zero salvage value, and a 10% WACC. Assuming each of the indicated lives has the sarobability of (probibility = 1/3), what is the s expected NPV? (hint use the traight line depreciation for all analysis and ignore the MACRS hald year convention for this .)