Haulin' It Towing Company Is Considering Adding More Tow Trucks

question 33

Multiple Choice

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? ? $$\begin{array} { | l | l | } \hline \text { Years } & \text { Cash Flows } \\\hline \hline 1 & \$ 80,000 \\\hline \hline 2 & \$ 95,000 \\\hline \hline 3 & \$ 110,000 \\\hline\end{array}$$

• 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.

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Definitions:

Dual Rate

A cost allocation method that separates costs into fixed and variable elements, applying different rates for each in costing calculations.

Single Rate

A method used in cost accounting where a single overhead rate is applied to all units produced, regardless of the department in which they were produced or the resources they consumed.

Fixed Costs

Fixed expenditures that are unaffected by production or sales volumes, encompassing rent, salaries, and insurance.

Variable Costs

Expenses that vary directly with the level of production or sales volume, such as raw materials and direct labor costs.