Question
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck. The truck's basic price is
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck. The truck's basic price is $65,000, and it will cost another $15,000 to modify it for special use by your firm. The truck falls into the MACRS three-year class (33%, 45%, 15%, 7%) and it will be sold after three years for $22,500. Use of the truck will require an increase in net operating working capital (spare parts inventory) of $3,500., recoverable at the end of the project. The truck will have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 40 percent. The truck's cost of capital is 10 percent. What is the NPV and should the truck be purchased? SHOW OUT WORK PLEASE
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