Question
You have been asked by the president of the Farr Construction Company to evaluate the proposed acquisition of a new earth mover. The movers basic
You have been asked by the president of the Farr Construction Company to evaluate the proposed acquisition of a new earth mover. The movers basic price is , and it would cost another to modify it for special use. Assume that the mover falls into the MACRS 3-year class (see Appendix 11-A), that it would be sold after for , and that it would require an increase in net working capital (spare parts inventory) of at the start of the project. This working capital will be recovered at Year 3. The earth mover would have no effect on revenues, but it is expected to save the firm in before-tax operating costs, mainly labor. The firms marginal federal-plus-state tax rate is . What are the Year-0 cash flows?
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