Robinson Co. is interested in purchasing a new delivery vehicle so it can become a subcontractor with Amazon Logistics. The vehicle costs $75,000 and will generate delivery revenue of $30,000 in year 1; they anticipate this revenue will increase by 5% in each of the following five years (years 2-6) due to inflation. If Robinson Co. purchases the vehicle, it will take a loan for $60,000 that charges 4% annual interest and repay the loan in 6 equal end of year payments. At the end of the 6 years, the vehicle will be sold for $10,000 (in then-current dollars). The tax rate is 25%. Assuming that the vehicle is depreciated using MACRS (5-year property class) and that Robinson Co. uses an after-tax MARR of 10%, compute the PW and determine whether Robinson Co. should purchase the new business vehicle. Click here to access the TVM Factor Table calculator. Click here to access the MACRS-GDS Property Classes. Click here to access the MACRS-GDS percentages page. Click here to access the MACRS-GDS percentages for 27.5-year residential rental property.

Robinson Co. is interested in purchasing a new delivery vehicle so it can become a subcontractor with Amazon Logistics. The vehicle costs $75,000 and will generate delivery revenue of $30,000 in year 1; they anticipate this revenue will increase by 5% in each of the following five years (years 2-6) due to inflation. If Robinson Co. purchases the vehicle, it will take a loan for $60,000 that charges 4% annual interest and repay the loan in 6 equal end of year payments. At the end of the 6 years, the vehicle will be sold for $10,000 (in then-current dollars). The tax rate is 25%. Assuming that the vehicle is depreciated using MACRS (5-year property class) and that Robinson Co. uses an after-tax MARR of 10%, compute the PW and determine whether Robinson Co. should purchase the new business vehicle. Click here to access the TVM Factor Table calculator. Click here to access the MACRS-GDS Property Classes. Click here to access the MACRS-GDS percentages page. Click here to access the MACRS-GDS percentages for 27.5-year residential rental property.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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