You are currently working as an independent consultant for Cong Nghiep Constructions and LPG (Liquefied Petroleum Gas) company. You have been asked by the president to evaluate the proposed acquisition of a new earth mover. The movers basic price is $50,000, and it would cost another $10,000 to modify it for special use. Assume that the mover falls into the MACRS 3- year class, it would be sold after 3 years for $20,000, and it would require an increase in net working capital (spare parts inventory) of $2,000. The earth mover would have no effect on revenues, but it is expected to save the firm $30,000 per year in before-tax operating costs, mainly labor. The firms tax rate is 40%.

a/ What is the depreciable basis for the earth mover?

b/ Is there a tax effect when selling the earth mover? What is the net cash flow from selling the earth mover?

c/ If the projects cost of capital is 10%, should the earth mover be purchased? Show your calculations

	Property Class
Year	3-year	5-year	7-year
1	33.33%	20.00%	14.29%
2	44.45%	32.00%	24.49%
3	14.81%	19.20%	17.49%
4	7.41%	11.52%	12.49%
5		11.52%	8.93%
6		5.76%	8.92%
7			8.93%
8			4.46%