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 $265,000, and it will cost another $35,000 to modify it for special use by your firm. The truck falls into the MACRS three-year class, and it will be sold after three years for $45,000. Use of the truck will require an increase in net operating working capital (spare parts inventory) of $20,000. The truck will have no effect on revenues, but it is expected to save the firm $125,000 per year in before-tax operating costs, mainly labor. The firm's cost of capital is 10% and the marginal tax rate is 35 percent. Should the company accept/reject the project?
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