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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 pretax 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. The company's marginal tax rate is 40% and its cost of capital is 7.5%. Calculate the net present value of the transaction

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Solution Summary

The solution explains how to calculate the NPV of the transaction

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NPV = PV of after tax cash inflows - initial investment
The after tax cash inflows are
Year 1 - 75,000 X ...

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