6. value: 10.00 points You have been asked by the president of your company to e

Question

6. value: 10.00 points 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 $20,100. Use of the truck will require an increase in NWC (spare parts inventory) of $2,100. The truck will have no effect on revenues, but it is expected to save the firm $17,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 35 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.) Year FCF Hints References eBook & Resources

Explanation / Answer

  Calculation of Cash Flow for the project

Cash Flow for the project is as follows -

Year (n) Initial Investments MACRS depreciation percentage Depreciation with MACRS Method (D) Salvage value Increase in Net Working Capital (NWC) Saving in expenses Before taxes cash flow (BTCF) Taxable Income (BTCF - depreciation) Income taxes (Taxable Income *35%) After Tax Net Income (taxable income - taxes) Free Cash Flow = ( Net Income + depreciation) 0 -$50,000 -$2,100 -$52,100 1 33.33% $16,665 $17,000 $17,000 $335 $117 $218 $16,883 2 44.45% $22,225 $17,000 $17,000 -$5,225 $0 -$5,225 $17,000 3 14.81% $7,405 $20,100 $2,100 $17,000 $39,200 $31,795 $11,128 $20,667 $28,072 4 7.41% $3,705

Related Questions

Navigate

• Browse (All)
• Browse 6
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.