Alice owns a tow truck company. She is considering buying a new tow truck for ($ 55,000).

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Alice owns a tow truck company. She is considering buying a new tow truck for \(\$ 55,000\). The service life of the truck is five years. At the end of the five years, Alice estimates she can sell the truck for \(\$ 5,000\). She estimates her revenues from the truck will be \(\$ 15,000\) per year. The tax rate of the company is \(30 \%\) and its discount rate is \(10 \%\). What is the depreciation expense for the truck? How much tax will Alice owe each year? (Hint: Include savings from depreciation.) What will the annual cash flows be for the truck? What is the NPV of the truck?

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Managerial Accounting Information For Decisions

ISBN: 9780324222432

4th Edition

Authors: Thomas L. Albright , Robert W. Ingram, John S. Hill

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