# finance data bank

Question # 00005024 Posted By: spqr Updated on: 12/09/2013 09:42 AM Due on: 12/30/2013
Subject Finance Topic Finance Tutorials:
Question

[MACRS table required]

You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose 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 three-year 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 before-tax 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 (non-operating) 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

.

Tutorials for this Question
1. ## Solution: finance data bank

Tutorial # 00004812 Posted By: spqr Posted on: 12/09/2013 10:07 AM
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of your company to evaluate the proposed acquisition of a ...
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