finance data bank
[MACRS table required]
You have been asked by the president of your company to evaluate the proposed acquisition of a new specialpurpose truck. The truck's basic price is $50,000, and it will cost another $10,000 to modify it for special use by your firm. The truck falls into the MACRS threeyear class, and it will be sold after three years for $20,000. Use of the truck will require an increase in net operating working capital (spare parts inventory) of $2,000. The truck will have no effect on revenues, but it is expected to save the firm $20,000 per year in beforetax operating costs, mainly labor. The firm's marginal tax rate is 40 percent.
[i]. What is the net investment in the truck? (That is, what is the Year 0 net cash flow?)
a. $50,000
b. $52,600
c. $55,800
d. $62,000
e. $65,000
[ii]. What is the operating cash flow in Year 1?
a. $17,820
b. $18,254
c. $19,920
d. $20,121
e. $21,737
[iii]. What is the total terminal (nonoperating) cash flow at the end of Year 3?
a. $10,000
b. $12,000
c. $15,680
d. $16,000
e. $18,000
[iv]. The truck's cost of capital is 10 percent. What is its NPV?
a. $1,547
b. $ 562
c. $ 0
d. $ 562
e. $1,034
.

Rating:
5/
Solution: finance data bank