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Company X is choosing a policy on the age at which to replace trucks in its fleet, which depends upon which "truck line" it chooses. There are two (mutually exclusive) alternatives: A) a 10 year truck that has initial (time 0) price/cost $25,000, annual maintenance cost of $1000/year and salvage value in year/time 10 of $6000, or B) a 15 year truck that has initial (time 0) price/cost of $28,000, annual maintenance cost of $1500/year, and salvage value in year/time 15 of $3000. All cash flows are after tax. Discount rate = 10%. I recommend you first write down your calculator entries for "step 1" (calculating the NPV of costs) and "step 2" (calculating the EAC) for each of the two trucks; THEN you can go through and answer the questions based on what you have written down. We begin with the three questions to calculate the NPV of costs for the 10 year truck (STEP 1): Part I a. (STEP 1, 10 year truck.) To calculate the NPV of net costs for the 10 year truck, please indicate your calculator entries for N and I/Y, where N is a simple integer (e.g., 20 for 20 periods), and I/Y is recorded as xx.x (to one decimal, recorded as percentage points per the calculator). N= VY=

Company X is choosing a policy on the age at which to replace trucks in its fleet, which depends upon which "truck line" it chooses. There are two (mutually exclusive) alternatives: A) a 10 year truck that has initial (time 0) price/cost $25,000, annual maintenance cost of $1000/year and salvage value in year/time 10 of $6000, or B) a 15 year truck that has initial (time 0) price/cost of $28,000, annual maintenance cost of $1500/year, and salvage value in year/time 15 of $3000. All cash flows are after tax. Discount rate = 10%. I recommend you first write down your calculator entries for "step 1" (calculating the NPV of costs) and "step 2" (calculating the EAC) for each of the two trucks; THEN you can go through and answer the questions based on what you have written down. We begin with the three questions to calculate the NPV of costs for the 10 year truck (STEP 1): Part I a. (STEP 1, 10 year truck.) To calculate the NPV of net costs for the 10 year truck, please indicate your calculator entries for N and I/Y, where N is a simple integer (e.g., 20 for 20 periods), and I/Y is recorded as xx.x (to one decimal, recorded as percentage points per the calculator). N= VY=

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Problem 1. Part I b. (STEP I, 10 year truck.) To calculate the NPV of net costs for the 10 year truck, please indicate your calculator entries for PMT and FV. Note: You need to include ALL cash flows in the Step 1 calculation. However, the initial (time 0) truck cost will be counted in part lc, NOT here. (Please indicate EXACTLY how you enter the corresponding value in the calculator, e.g., 1,000 for positive 1,000 dollars (no $ signs, with comma as needed, no decimal point, round to nearest dollar), -1,000 for negative one thousand dollars. Be sure to enter a negative (-) for a cash outflow (cost) and a positive (without a + or -) for money you receive (cash inflow).) PMT= FV= Problem 1. Part I c. (STEP 1, 10 year truck.) What is the NPV (of net costs) for the 10-year truck strategy? (Hint: Here, the new truck cost SHOULD be counted in this NPV as a time 0 cost.) This is your "bottom line" answer for Step 1 and is rounded to the nearest dollar. Problem 1. Part I d. (STEP 2, 10 year truck.) In the next 3 questions (part I d-f), please indicate your entries/calculations for the Equivalent Annual Cost of the 10-year truck. We start (part 1 d) with your calculator entries for N and IY, where N is a simple integer (e.g., 20 for 20 periods), and IY is recorded as XX.X (to one decimal, recorded as percentage points per the calculator).
Transcribed Image Text:Problem 1. Part I b. (STEP I, 10 year truck.) To calculate the NPV of net costs for the 10 year truck, please indicate your calculator entries for PMT and FV. Note: You need to include ALL cash flows in the Step 1 calculation. However, the initial (time 0) truck cost will be counted in part lc, NOT here. (Please indicate EXACTLY how you enter the corresponding value in the calculator, e.g., 1,000 for positive 1,000 dollars (no $ signs, with comma as needed, no decimal point, round to nearest dollar), -1,000 for negative one thousand dollars. Be sure to enter a negative (-) for a cash outflow (cost) and a positive (without a + or -) for money you receive (cash inflow).) PMT= FV= Problem 1. Part I c. (STEP 1, 10 year truck.) What is the NPV (of net costs) for the 10-year truck strategy? (Hint: Here, the new truck cost SHOULD be counted in this NPV as a time 0 cost.) This is your "bottom line" answer for Step 1 and is rounded to the nearest dollar. Problem 1. Part I d. (STEP 2, 10 year truck.) In the next 3 questions (part I d-f), please indicate your entries/calculations for the Equivalent Annual Cost of the 10-year truck. We start (part 1 d) with your calculator entries for N and IY, where N is a simple integer (e.g., 20 for 20 periods), and IY is recorded as XX.X (to one decimal, recorded as percentage points per the calculator).
Company X is choosing a policy on the age at which to replace trucks in its fleet, which depends upon which "truck line" it chooses. There are two (mutually exclusive) alternatives: A) a 10 year truck that has initial (time 0) price/cost $25,000, annual maintenance cost of $1000/year and salvage value in year/time 10 of $6000, or B) a 15 year truck that has initial (time 0) price/cost of $28,000, annual maintenance cost of $1500/year, and salvage value in year/time 15 of $3000. All cash flows are after tax. Discount rate = 10%. I recommend you first write down your calculator entries for "step 1" (calculating the NPV of costs) and "step 2" (calculating the EAC) for each of the two trucks; THEN you can go through and answer the questions based on what you have written down. We begin with the three questions to calculate the NPV of costs for the 10 year truck (STEP 1): Part I a. (STEP 1, 10 year truck.) To calculate the NPV of net costs for the 10 year truck, please indicate your calculator entries for N and I/Y, where N is a simple integer (e.g., 20 for 20 periods), and I/Y is recorded as xx.x (to one decimal, recorded as percentage points per the calculator). N= I/Y=
Transcribed Image Text:Company X is choosing a policy on the age at which to replace trucks in its fleet, which depends upon which "truck line" it chooses. There are two (mutually exclusive) alternatives: A) a 10 year truck that has initial (time 0) price/cost $25,000, annual maintenance cost of $1000/year and salvage value in year/time 10 of $6000, or B) a 15 year truck that has initial (time 0) price/cost of $28,000, annual maintenance cost of $1500/year, and salvage value in year/time 15 of $3000. All cash flows are after tax. Discount rate = 10%. I recommend you first write down your calculator entries for "step 1" (calculating the NPV of costs) and "step 2" (calculating the EAC) for each of the two trucks; THEN you can go through and answer the questions based on what you have written down. We begin with the three questions to calculate the NPV of costs for the 10 year truck (STEP 1): Part I a. (STEP 1, 10 year truck.) To calculate the NPV of net costs for the 10 year truck, please indicate your calculator entries for N and I/Y, where N is a simple integer (e.g., 20 for 20 periods), and I/Y is recorded as xx.x (to one decimal, recorded as percentage points per the calculator). N= I/Y=
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