Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 10 6.25 pts You are evaluating the acquisition of a new vehicle for $85,000. The vehicle falls into the MACRS three-year class (the depreciation

image text in transcribed
Question 10 6.25 pts You are evaluating the acquisition of a new vehicle for $85,000. The vehicle falls into the MACRS three-year class (the depreciation rates are: Year 1 at 33.33%; Year 2 at 44.45%; Year 3 at 14.81%; and Year 4 at 7.41%), and it will be sold at the end of Year 3 for $20,000. Use of the vehicle requires an increase in NWC of $2,000. The firm has incremental sales of $100,000 (each year) in Years 1-3. The truck will have no effect on revenues, but it is expected to save the firm $20,000 per year in pre-tax operating costs. The firm's marginal tax rate is 40 percent. What will the free cash flows for this project be in Year 0, Year 1, Year 2, and Year 3? Year 0 -$87,500; Year 1 $82,666; Year 2 $85,116; Year 3 $91,554 Year 0-$87,500; Year 1 $83,666; Year 2 $86,890; Year 3 $88,444 Year 0-$87,000; Year 1 583,332; Year 2 $87,113; Year 3 $93,555 Year 0-$87,000; Year 1 $82,332; Year 2 $88,890: Year 3 $98,444

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Markets And Institutions

Authors: Frederic S. Mishkin, Stanley Eakins

6th Edition

0321374215, 9780321374219

More Books

Students also viewed these Finance questions

Question

Let f () = log b (3 2 2). For what value of b is f' (1) = 3?

Answered: 1 week ago