The wellington construction company is considering acquiring a new earthmover. The movers basic price is $90,000, and it will cost another $18,000 to modify it for special use by the company. This earthmover falls into the MACRS five-year class. It will be sold after four years for $20,000. The purchase of the earthmover will have no effect on revenues, but is expected to save the firm $35,000 per year before tax operating costs, mainly labor. The firms marginal tax rate (federal plus state) is 40%, and its MARR is 10%.

a. Is this project acceptable based on the most likely estimates given?

b.Suppose the project will require an increase in net working capital (spare parts inventory) of $5,000, which will be recovered at the end of year 4. Taking this new requirement into account, would the project still be acceptable?

c.If the firms MARR is increased to 18% and with the working capital requirement from (b) not in effect what would be the required savings in labor so that the project remains profitable?

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