chapt 12 You have been asked by the president of your company to evaluate the pr
ID: 2613424 • Letter: C
Question
chapt 12
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $50,000. The truck falls into the MACRS 3-year class, and it will be sold after three years for $21,000. Use of the truck will require an increase in NWC (spare parts inventory) of $3,000. The truck will have no effect on revenues, but it is expected to save the firm $16,900 per year in before-tax operating costs, mainly labor. The firm’s marginal tax rate is 34 percent.
What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)
What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)
Explanation / Answer
Gain = 1,462.00
Assumed no discounting of the cashflows.And 34% tax on money saved,
Cost of truck -50,000.00 Cost of Spare part inventory -3,000.00 Salvage Value 21,000.00 Funds Saved for Firm Year 0 Year 1 Year 2 Year 3 -53,000.00 16,900.00 16,900.00 16,900.00 Post Tax 11,154.00 11,154.00 11,154.00 Salvage Value 21,000.00 Total Benefit 54,462.00 Total Cost -53,000.00Gain = 1,462.00
Assumed no discounting of the cashflows.And 34% tax on money saved,
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