In order to expand its business, Auto Parts Distributing, Inc., is considering the purchase of four pickup trucks at a total cost of $180,000. The company expects to keep these trucks for four years, then sell them. The company expects these trucks to generate a after tax net cash flow of $95,000 in year 1, $90,000 in year 2, $85,000 in year 3, $80,000 in year 4, and to sell after four years for a total price of $30,000 non-taxable. The companys marginal tax rate is 35% and its cost of capital is 12%.
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The solution computes after tax cash flow for each year 1 thru 4 (ignore depreciation); Profitability Index; Net Present Value; Payback period; Internal Rate of Return.