Final answer:
The annual net cash flows from the project are $0.63 million.
Step-by-step explanation:
To determine the annual net cash flows from the project, we need to calculate the initial investment, annual savings, and salvage value. First, let's calculate the initial investment:
Initial investment = Cost of equipping trucks + Cost of message-relaying system = $8 million + $2 million = $10 million
Next, let's calculate the annual savings:
Annual savings = Savings from reduced communication bill + Savings from reduced deadhead miles = ($5 million * 60%) + ($1.25 million) = $3 million + $1.25 million = $4.25 million
Finally, let's calculate the salvage value:
Salvage value = 0 (given that it has negligible salvage value)
Net cash flows = Annual savings - Depreciation - Taxes = $4.25 million - Depreciation - ($4.25 million * 38%)
Since the depreciation is spread over 5 years, the annual depreciation is ($10 million / 5 years = $2 million). Substituting this value in the equation, we get:
Net cash flows = $4.25 million - $2 million - ($4.25 million * 38%) = $4.25 million - $2 million - $1.62 million = $0.63 million