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 $50,000, and it will cost another $10,000 to modify it for special use by your firm. The trick falls into the MACRS three-year class, and it will be sold after three years for $20,000. Use of the trick will require an increase in net working capital (spare parts inventory) of $2,000. The truck will have no effect on revenues, but it is expected to save the firm $20,000 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 its NPV? Please show work.
A) -$1,547
B) -$562
C) $0
D) $562
E) $1,034
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