You have been asked by the president of your company to evaluate the proposed ac
ID: 2623530 • Letter: Y
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 3-year class, and it will be sold after three years for $20,800. Use of the truck will require an increase in NWC (spare parts inventory) of $2,800. The truck will have no effect on revenues, but it is expected to save the firm $23,600 per year in before-tax operating costs, mainly labor. The firms marginal tax rate is 34 percent.
What will the cash flows for this project be?
What will the cash flows for this project be?
Explanation / Answer
Assuming that spareparts inventory expense of 2,800 will be annual, CF will be:
Year Cashflows 0 -70000 1 23600-2800=20800 2 23600-2800=20800 3 20800+23600-2800=41600Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.