You have been asked by the president of your company to evaluatethe proposed acquisition of a new special-purpose truck for $70,000. The truck falls intothe MACRS three-year class, and it will be sold after three years for $19,000. Use of thetruck will require an increase in NWC (spare parts inventory) of $1,000. The truck willhave no effect on revenues, but it is expected to save the firm $24,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What willthe cash flows for this project be (year 0-3)?
You have been asked by the president of your company to evaluatethe proposed acquisition of a new special-purpose truck for $70,000. The truck falls intothe MACRS three-year class, and it will be sold after three years for $19,000. Use of thetruck will require an increase in NWC (spare parts inventory) of $1,000. The truck willhave no effect on revenues, but it is expected to save the firm $24,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What willthe cash flows for this project be (year 0-3)?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
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Question
You have been asked by the president of your company to evaluate
the proposed acquisition of a new special-purpose truck for $70,000. The truck falls into
the MACRS three-year class, and it will be sold after three years for $19,000. Use of the
truck will require an increase in NWC (spare parts inventory) of $1,000. The truck will
have no effect on revenues, but it is expected to save the firm $24,000 per year in before-
tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What will
the cash flows for this project be (year 0-3)?
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