Question

Your company operates a fleet of light trucks that are used to provide contract delivery services. As the engineering and technical manager, you are analyzing the purchase of 55 new trucks as an addition to the fleet. These trucks would be used for a new contract the sales staff is trying to obtain. If purchased, the trucks would cost $21,200 each; estimated use is 20,000 miles per year per truck; estimated operation and maintenance and other related expenses (year-zero dollars) are $0.45 per mile, which is forecasted to increase at the rate of 5% per year; and the trucks are MACRS (GDS) three-year property class assets. The analysis period is four years; t= 25%; MARR = 15% per year (after taxes; includes an inflation component); and the estimated MV at the end of four years (in year-zero dollars) is 35% of the purchase price of the vehicles. This estimate is expected to increase at the rate of 2% per year. Based on an after-tax analysis, what is the uniform annual revenue required by your company from the contract to justify these expenditures before any profit is considered? This calculated amount for annual revenue is the breakeven point between purchasing the trucks and which other alternative?

Answer 1

Step-by-step explanation:

Your company operates a fleet of flight trucks that are used to provide contract delivery services. As the engineering and technical manager, you are analyzing the purchase of 55 new trucks as an addition to the fleet.These trucks would be used for a new contract the sales staff is trying to obtain. If purchased, the trucks would cost $21,200 each; estimated use is 20,000 miles per year per truck; estimated annual operation and maintenance and other related expenses (year-zero dollars) are $0.45per mile which is forecasted to increase at a rate of 5% per year; and estimated annual revenue (in actual $) are $20,000 per year per truck required .

The trucks are MACRS-GDS three-year property class assets.The analysis period is four years; t=38%; after-tax MARR=15% per year (after-tax; includes an inflation component) ; and the estimated MV at the end of four years (in year-zero dollars) is 35% of the purchase price of the vehicles.This estimate is expected to increase at the rate of 2% per year.

Part A: Create a spreadsheet to determine whether your company should buy the new trucks. Develop the spreadsheet for each truck (per truck).

Part B: Based on an after-tax, actual-dollar analysis, what is the annual revenue required by your company from the contract to justify these expenditures before any profit is considered?

Answer 2

Revenues in the order of 18.170,66 dollars per truck per year will break even financially the investment with a yield of 15%

for the 55 truck $999.386,66 per year

Step-by-step explanation:

F0 cash disbursement 21,200

MACRS dep dep tax shield (depreciation x tax rate)

7,065.96 1,766.49

9,423.40 2,355.85

3,139.72 784.93

1,570.92 392.73

annual cost of the truck:

20,000 x 0.45 x 5% increase per year

maintenance

first year 9000

second year: 9450

third year: 9922.5

fourth year: 10418.625

net (maintenance cost less tax shield):

net

7233.51

7094.15

9137.57

10025.895

Then, we bring this to present considering the discount rate:

`(cash \: flow)/((1 + rate)^(time) ) = PV`

time: 1 7,233.51 6,290.01

time: 2 7,094.15 7,094.15

time: 3 9,137.57 9,137.57

time: 4 10,025.90 10,025.90

Total PV 32,547.63

We know the salvage value in todays dollar is 35% of the purchase price:

21,200 x 35% = 7,420

(the inflation is already considered in the MARR)

We knwo calculate the present worth:

-21,200 - 32,547.63 + 7,420 = -38.907,63‬

Know we solve for an annuity of four year to ge t the equivalent annual cost:

`PV / (1-(1+r)^(-time) )/(rate) = C\\`

PV 38,908

time 4

rate 0.15

`38907.63 / (1-(1+0.15)^(-4) )/(0.15) = C\\`

C $ 13,627.995

We have to consider taxes so:

13,628 / 0.75 = 18.170,66