ROAD KING TRUCKS CASE ANALYSIS
BUS 500D: Business Finance
March 2, 2012
The main purpose of this paper is to have a brief analysis and evaluation on the project provided by Road King Trucks Company. Six main problems offered are the main topics in this paper. After evaluation, a recommendation will put out to choose the right engine and on the project.
Road King Trucks Case Analysis
Summary results and recommendations
After these analyses based on the data provided, the project held by Road King Trucks should accept. There are some reasons to hold …show more content…
What is the company’s cost of capital? What is the appropriate discount factor (which may be different) for you to use in evaluating the bus project.
The cost of capital equals the cost of debt plus the cost of equity, which is 8.49%. In my opinion, time to get back what put in to investment is the main factor to evaluating the bus project. Early to get fee back means early to develop new project for the trends are changing. Only if one gets pace with the trends can he get most profits.
If you decided to go ahead with the project, which of the two engines should be used in the bus, and why?
I will choose Detroit engines based on the resource provided. One reason is that even though the price per engine, including installation of the Marcus engines seems $200 cheaper than Detroit’s. The price plus five years’ warranty cost of Detroit is $20000+$1000*5=$25000, while the total cost of Marcus’s is $18000+$1500*5=$25500. This two numbers show that actually Marcus engines is expensive than Detroit engines. Until now, and with all consideration based on the resources being given, I will choose Detroit’s engines. But further investigation is warranted. In my consideration, the quality of the engine, the suitable matches between engine and the truck system, the steady