You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $60,000. The truck falls into the MACRS 3-year class, is not eligible for either bonus depreciation or Section 179 expensing, and it will be sold after three years for $19,200. Use of the truck will require an increase in NWC (spare parts inventory) of $1,200. The truck will have no effect on revenues, but it is expected to save the firm $20,600 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? Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Answer is complete but not entirely correct. Year 0 1 2 3 FCF $ (61,200.00) S 16,274 00 S 16,274 00 S 31,442.00 X

Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter11: Depreciation, Depletion, Impairment, And Disposal
Section: Chapter Questions
Problem 13P
icon
Related questions
Question
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for
$60,000. The truck falls into the MACRS 3-year class, is not eligible for either bonus depreciation or Section 179 expensing, and it will
be sold after three years for $19,200. Use of the truck will require an increase in NWC (spare parts inventory) of $1,200. The truck will
have no effect on revenues, but it is expected to save the firm $20,600 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?
Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.
Answer is complete but not entirely correct.
Year
0
1
2
3
FCF
$
(61,200.00)
S
16,274 00 S
16,274 00 S
31,442.00 X
Transcribed Image Text:You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $60,000. The truck falls into the MACRS 3-year class, is not eligible for either bonus depreciation or Section 179 expensing, and it will be sold after three years for $19,200. Use of the truck will require an increase in NWC (spare parts inventory) of $1,200. The truck will have no effect on revenues, but it is expected to save the firm $20,600 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? Note: Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. Answer is complete but not entirely correct. Year 0 1 2 3 FCF $ (61,200.00) S 16,274 00 S 16,274 00 S 31,442.00 X
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:
9781337788281
Author:
James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Principles of Accounting Volume 1
Principles of Accounting Volume 1
Accounting
ISBN:
9781947172685
Author:
OpenStax
Publisher:
OpenStax College