Green Management Company is considering the acquisition of a new eighteen-wheeler.
• The truck’s base price is $80,000. and it will cost another $20,000 to modify it for special use by the company.
• This truck falls into the MACRS five-year class. It will be sold after three years for $30,000.
• The truck purchase will have no effect on revenues, but it is expected to save the firm S45,000 per year in before-tax operating costs, mainly in leasing expenses.
• The firm’s marginal tax rate (federal plus state) is 40%, and its MARR is 15%.
(a) Is this project acceptable, based on the most likely estimates given in the problem?
(b) lithe truck’s base price is $95,000. what would be the required savings in leasing so that the project would remain profitable?