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Business Calculations for an Auto Parts Distributing Business

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Question: In order to expand its business, Auto Parts Distributing, Inc., is considering the purchase of 10 pickup trucks at a total cost of $150,000. The company expects to keep these trucks for four years, then sell them. The company expects these trucks to generate a net cash flow of $75,000 in year 1, $70,000 in year 2, $65,000 in year 3, $60,000 in year 4, and to sell after four years for a total price of $30,000 fully taxable. Its cost of capital is 12%.

Calculate:
a. Present value of cash flow for each year 1 through 4
b. Payback period
c. Profitability index
d. Net present value
e. Internal rate of return

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Solution Summary

This solution provides the step by step calculations in an attached Excel file.

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