Haulin' It Towing Company is considering adding more tow trucks to its fleet.The cost of the new trucks is $150,000.The project will utilize the risk adjusted discount, the firm has a beta of 1.3, the risk free rate is 7% and the return in the market is 15%.Should Haulin' It add the additional trucks if the expected increased revenues will be as follows?
$$\begin{array} { | c | c | }
\hline \text { Years } & \text { Cash Flaws } \
\hline 1 & \text { \$od,00] } \
\hline 2 & 195,000 \
\hline 3 & 110,000 \
\hline
\end{array}$$
A)No, the NPV of the project is -$15,175.19
B)Yes, the NPV of the project is $75,275.16
C)No, the NPV of the project is -$9,765.12
D)Yes, the NPV of the project is $55,050.92

Question

Haulin' It Towing Company is considering adding more tow trucks to its fleet.The cost of the new trucks is $150,000.The project will utilize the risk adjusted discount, the firm has a beta of 1.3, the risk free rate is 7% and the return in the market is 15%.Should Haulin' It add the additional trucks if the expected increased revenues will be as follows?
$$\begin{array} { | c | c | } 
\hline \text { Years } & \text { Cash Flaws } \
\hline 1 & \text { \$od,00] } \
\hline 2 & 195,000 \
\hline 3 & 110,000 \
\hline
\end{array}$$
A)No, the NPV of the project is -$15,175.19
B)Yes, the NPV of the project is $75,275.16
C)No, the NPV of the project is -$9,765.12
D)Yes, the NPV of the project is $55,050.92

Quizplus · Accepted Answer

Find the RADR
7 + [1.3(15 - 7)] = 17.4%
CF₀ = -$150,000
CF₁ = 80,000
CF₂ = 95,000
CF₃ = 110,000
I/Yr = 17.4
NPV = $55,050.92

Haulin' It Towing Company Is Considering Adding More Tow Trucks