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?
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? 
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

Solution: 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 to Its