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QUESTION FOUR Stonefield Carriers has determined that a new specialised delivery truck must be obtained....

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QUESTION FOUR Stonefield Carriers has determined that a new specialised delivery truck must be obtained. The truck will generate a positive NPV of R500 000, calculated using the company's WACC of 20%. The truck can be leased from the manufacturer. The lease agreement required 5 annual payments of R520 000, with the first payment due on the delivery of the vehicle. The lessee is required to pay R50 000 at the end of year two for a mandatory service required on the truck. The lessee will also exercise the option to purchase the truck for R150 000 upon termination of the lease at the end of the period. The truck can also be purchased at a cost of R2 800 000 in cash, Annual maintenance costs total R100 000. The vehicle can be depreciated straight-line over the same period and will have a scrap value of R150 000 at the end of the 4 years. The current corporate tax rate is 28% and the after-tax cost of debt is 16%. 4.1 Determine the after-tax cash flows and the net present value of the cash outflows under each (23 marks) alternative 4.2 Which alternative would you recommend? Why? (2 marks)

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