Your firm agrico products is concidering a tractor that


Your firm, Agrico products, is concidering a tractor that would have a cost of $36,000, would increase pre tax operating cash flows before taking account of a cost of depreciation by $12,000 per year, and would be depreciated on a straight line basis to zero over 5 years at a rate of $7200 per year beginning the first year. (Thus annual cash flows would be $12000 before taxes pluss the tax savings that result from $7200 of depreciation.) The managers disagree about weather the tractor would last 5 years. The controller insists that she knows of tractors that have lasted only 4 years. The treasurer agrees with the controller, but he argues that most tractors do give 5 years of service. The service manager then states that some last for as long as 8 years. Given this discussion, the CFO asks you to prepare a scenario analysis to determine the importance of the tractors life on the . Use 40% marginal federal-plus-state tax rate, a zero salvage value, and a 10% WACC. Assuming each of the indicated lives has the sarobability of (probibility = 1/3), what is the s expected NPV? (hint use the traight line depreciation for all analysis and ignore the MACRS hald year convention for this .)

Request for Solution File

Ask an Expert for Answer!!
Financial Management: Your firm agrico products is concidering a tractor that
Reference No:- TGS01359618

Expected delivery within 24 Hours