Please answer questions 1-7 based on the following information:

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 $40,000, and it will cost another $5,000 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 $6,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. Use of the truck will require an increase in net operating working capital (spare parts inventory) of $1,500. The truck will have no effect on revenues, but it is expected to save the firm $10,000 per year in before-tax operating costs, mainly labor. The firms marginal tax rate is 40%.

1) What is CFFA at year 0?

a. -$48,500 b. -$46,500 c. -$47,000 d. -$50,000

2) What is depreciation at year 2?

a. $20,250 b. $19,800 c. $27,000 d. $18,400

3) What is CFFA at year 2?

a. $10,000 b. $13,220 c. $14,100 d. $22,800

4) What is deprecation tax shield benefit at year 1?

a. $9,800 b. $7,920 c. $6,820 d. $5,940

5) What is after-tax cost saving at year 1?

a. $ 6,000 b. $10,000 c. $12,000 d. $ 8,000

6) What is the tax on salvage value?

a. $2,500 b. $1,450 c. $1,140 d. $6,000

7) What is CFFA at year 3?

a. $15,680 b. $15,060 c. $16,280 d. $15,600