Issues and Analyses

* Issues and Analyses

1. How much energy should be given to the energy cost situation?

It is important that Road King Trucks invest in making more revenue. The current energy cost situation is depending heavily on the aspects of life and business. The rising fuel prices will determine if expansion is beneficial. Fuel prices will also be able to determine the fact.

2. What are the project's cash flows for the next twenty years? What assumptions did you use?

The company's cash flow will increase to 1,413,685,769.23. This was calculated using annuity. Assuming the fact that fuel prices will increase along with the buses still be produced and warranty is still in function. Equipment, building, and land are not included in the costs as the items are assets and being depreciated.

3. What is the company's cost of capital? What is the appropriate discount (which may be different) for you to use in evaluating the bus project?

4. If you decide to go ahead with the project, which of the two engines should be used in the bus and why?

The best engine for this project is the Detroit engine. The engine cost $20,000, it is more expensive than the Marcus engine and the warranty is lower. The Detroit engine will provide a longer span of operation that the Marcus engine would. Annually the Detroit engine is going to cost $21,000 per bus and the Marcus engine is going to cost $19,500. It is of greater value to purchase a better engine for $1,500 than to maintenance the cost for maintenance on it.

5. Evaluate the quality of the project, by using appropriate capital budgeting techniques.

6. Would you recommend that Road King Trucks accept or reject the project? What are the key factors on which you base your recommendation?

I would recommend that Road King Trucks invest in the project if they are willing to take on the project and have the money to invest it in. If they aer