You have been asked by the president of your company to evaluate the proposed acquisition of...

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Finance

You have been asked by the president of your companyto evaluate the proposed acquisition of a new special purpose truckfor $50000. The truck falls into the MACRS 3 year class,and it willbe sold after three years for $19400. Use of the truck will requirean increase in NWC (spare parts inventory) of $1400. The truck willhave no effect on revenues but it is expected to save the firm$17100 per year in before tax operating costs,mainly labor. Thefirms marginal tax rate is 34 percent. What will the cash flows forthis project be?

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Initial Investment 50000 Useful Life 3 years Depreciation Year 1 3333 50000 Depreciation Year 1 16665 Depreciation Year 2 4445 50000 Depreciation Year 2 22225 Depreciation Year 3 1481 50000 Depreciation Year 3 7405 Book Value at the end of Year 3 See Answer

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You have been asked by the president of your companyto evaluate the proposed acquisition of a new special purpose truckfor $50000. The truck falls into the MACRS 3 year class,and it willbe sold after three years for $19400. Use of the truck will requirean increase in NWC (spare parts inventory) of $1400. The truck willhave no effect on revenues but it is expected to save the firm$17100 per year in before tax operating costs,mainly labor. Thefirms marginal tax rate is 34 percent. What will the cash flows forthis project be?