Laura wants to buy a delivery truck. The truck costs $53,000 , and will allow her to increase her after tax profits by $39,000 per year for the next 10 years. She will borrow 72% of the cost of the truck for 10 years, at an interest rate of 7%. Laura's unlevered cost of capital is 19% and her tax rate is 39%. The loan includes a $1,000 application fee. What is the NPV of buying the truck on these terms? Please use the APV method.
Laura wants to buy a delivery truck. The truck costs $53,000 , and will allow her to increase her after tax profits by $39,000 per year for the next 10 years. She will borrow 72% of the cost of the truck for 10 years, at an interest rate of 7%. Laura's unlevered cost of capital is 19% and her tax rate is 39%. The loan includes a $1,000 application fee. What is the NPV of buying the truck on these terms? Please use the APV method.
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter13: Investing In Mutual Funds, Etfs, And Real Estate
Section: Chapter Questions
Problem 9FPE
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![Laura wants to buy a delivery truck. The truck costs $53,000, and will allow her to increase her
after tax profits by $39,000 per year for the next 10 years. She will borrow 72% of the cost of the
truck for 10 years, at an interest rate of 7%. Laura's unlevered cost of capital is 19% and her tax
rate is 39%. The loan includes a $1,000 application fee. What is the NPV of buying the truck on
these terms? Please use the APV method.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1564b687-6916-46ca-982a-5ea1d3f8e349%2F8efb2c4c-f15f-4669-b386-a9d6d70cca13%2Fow18dxe_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Laura wants to buy a delivery truck. The truck costs $53,000, and will allow her to increase her
after tax profits by $39,000 per year for the next 10 years. She will borrow 72% of the cost of the
truck for 10 years, at an interest rate of 7%. Laura's unlevered cost of capital is 19% and her tax
rate is 39%. The loan includes a $1,000 application fee. What is the NPV of buying the truck on
these terms? Please use the APV method.
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