Question
23. You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck. The trucks basic price
23. You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck. The trucks basic price is $50,000, and it will cost another $10,000 to modify it for special use by your firm. The truck falls in the MACRS 3-year class, and it will be sold after three years for $20,000. The applicable depreciation rates are 33 percent, 45 percent, 15 percent, and 7 percent. 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 firms marginal tax rate is 40 percent. What is the net investment in the truck?
if the trucks cost of capital is 10 percent. What is its NPV?
a. -$1,547
b. -$ 562
c. $ 0
d. $ 562
e. None of the above
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