Academic Integrity: tutoring, explanations, and feedback — we don’t complete graded work or submit on a student’s behalf.

you have been asked by the president of your company to evaluate the proposed ac

ID: 2735660 • Letter: Y

Question

you have been asked by the president of your company to evaluate the proposed acquisition of a new special purpose truck. the basic price is 40,000 and it will cost another $20,000 to modify it. the truck will be depreciated over its three year life using straight line at a rate of $20,000 per year. an increase in net working capital is also expected of $5000. the truck is expected to save the firm $35,000 per year in operating expenses. the marginal tax rate is 40%. what is the net initial investment? you have been asked by the president of your company to evaluate the proposed acquisition of a new special purpose truck. the basic price is 40,000 and it will cost another $20,000 to modify it. the truck will be depreciated over its three year life using straight line at a rate of $20,000 per year. an increase in net working capital is also expected of $5000. the truck is expected to save the firm $35,000 per year in operating expenses. the marginal tax rate is 40%. what is the net initial investment? you have been asked by the president of your company to evaluate the proposed acquisition of a new special purpose truck. the basic price is 40,000 and it will cost another $20,000 to modify it. the truck will be depreciated over its three year life using straight line at a rate of $20,000 per year. an increase in net working capital is also expected of $5000. the truck is expected to save the firm $35,000 per year in operating expenses. the marginal tax rate is 40%. what is the net initial investment?

Explanation / Answer

Iniial Investment = Price of the truck + Modification cost + Change in Net Working Capital

Therefore Initial Investment will be = $40,000+ $20,000 + $5,000 = $65,000