Ace trucking company is considering expanding its fleet by 20 new trucks for a total...
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Ace trucking company is considering expanding its fleet by 20 new trucks for a total cost of $1.5 million. They expect to keep the trucks for 10 years and then sell them all for $200,000. To help them decide which type of truck to buy they paid a summer student $7,000 to compare alternatives and create a report. They believe that these new trucks will create incremental annual revenues of $25,000 per additional truck. They expect that annual operating costs per vehicle will be $9,000. Working capital of $20,000 will be required which will be returned when the vehicles are salvaged. The company has a 35% tax bracket, the CCA rate equals 30%, and the firm uses 12% as a cost of capital. Based on an NPV analysis should the company purchase the vehicles? Show all your work
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