3.the City Of San Jose-excel Modelling-fundamentals Of Financial Management-james C. Van Horne.john M. Wachowicz

3. The City of San Jose must replace a number of its concrete-mixer trucks with new trucks. It has received two bids and has evaluated closely the performance characteristics of the various trucks. The Rockbuilt truck, which costs $74,000, is top-of-the-line equipment. The truck has a life of eight years, assuming that the engine is rebuilt in the fifth year. Maintenance costs of $2,000 a year are expected in the first four years, followed by total maintenance and rebuilding costs of $13,000 in the fifth year. During the last three years, maintenance costs are expected to be $4,000 a year. At the end of eight years the truck will have an estimated scrap value of $9,000. A bid from Bulldog Trucks, Inc., is for $59,000 a truck. Maintenance costs for the truck will be higher. In the first year they are expected to be $3,000, and this amount is expected to increase by $1,500 a year through the eighth year. In the fourth year the engine will need to be rebuilt, and this will cost the company $15,000 in addition to maintenance costs in that year. At the end of eight years the Bulldog truck will have an estimated scrap value of $5,000. This Model is prepared by Rajib Dahal. If you need a. What are the relevant cash flows related to the trucks of each bidder? Ignore tax considerations excelsheet calculation, please contact me at my email at because the City of San Jose pays no taxes. [email protected]/[email protected] Assumptions for "The Rockbuilt Truck" Assumptions for "The Bulldog Trucks, Inc." Initial Capex 74,000.00 Initial Capex 59,000.00 Annual Maintenance Cost (for first 4 years) 2,000.00 Annual Maintenance Cost (in the first year) 3,000.00 Maintenance and rebuilding cost in the 5th year 13,000.00 Annual increment in maintenance cost 1,500.00 Annual Maintenance Cost (in the last 3 years) 4,000.00 Engine rebuilt cost (in the fourth year) 15,000.00 Scrap Value 9,000.00 Scrap Value 5,000.00 Cost of Capital (Assumed by me) 0.15 Cost of Capital (Assumed by me) 0.15 Cashflow on purchase of "The Rockbuilt Truck"

Year Initial Capex Maintenence & rebuilding cost Scrap Value Gain Undiscounted Cashflow Discount factor Discounted Cash flow NPV

Year 0 0 (74,000.00)

(74,000.00) 1.00 (74,000.00) (87,771.80)

Year 1 1

Year 2 2

Year 3 3

Year 4 4

Year 5 5

Year 6 6

Year 7 7

Year 8 8

(2,000.00)

(2,000.00)

(2,000.00)

(2,000.00)

(13,000.00)

(4,000.00)

(4,000.00)

(2,000.00) 0.87 (1,739.13)

(2,000.00) 0.76 (1,512.29)

(2,000.00) 0.66 (1,315.03)

(2,000.00) 0.57 (1,143.51)

(13,000.00) 0.50 (6,463.30)

(4,000.00) 0.43 (1,729.31)

(4,000.00) 0.38 (1,503.75)

(4,000.00) 9,000.00 5,000.00 0.33 1,634.51

Cashflow on purchase of "The Bulldog Trucks, Inc."

Year Initial Capex Maintenence cost Additional Engine rebuilt cost Scrap Value Gain Undiscounted Cashflow Discount factor Discounted Cash flow NPV

Year 0 0 (59,000.00)

(59,000.00) 1.00 (59,000.00) (98,124.83)

Year 1 1

Year 2 2

Year 3 3

Year 4 4

Year 5 5

Year 6 6

Year 7 7

Year 8 8

(3,000.00)

(4,500.00)

(6,000.00)

(7,500.00) (15,000.00)

(9,000.00)

(10,500.00)

(12,000.00)

(13,500.00)

(3,000.00) 0.87 (2,608.70)

(4,500.00) 0.76 (3,402.65)

(6,000.00) 0.66 (3,945.10)

(22,500.00) 0.57 (12,864.45)

(9,000.00) 0.50 (4,474.59)

(10,500.00) 0.43 (4,539.44)

(12,000.00) 0.38 (4,511.24)

5,000.00 (8,500.00) 0.33 (2,778.67)