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Question;[MACRS table required];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 truck falls into the MACRS;three-year class, and it will be sold after three years for $20,000. Use of the truck will require an increase in;net operating 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.;[i]. What;is the net investment in the truck? (That is, what is the Year 0 net cash;flow?);a. -$50,000;b. -$52,600;c. -$55,800;d. -$62,000;e. -$65,000;[ii]. What;is the operating cash flow in Year 1?;a. $17,820;b. $18,254;c. $19,920;d. $20,121;e. $21,737;[iii]. What;is the total terminal (non-operating) cash flow at the end of Year 3?;a. $10,000;b. $12,000;c. $15,680;d. $16,000;e. $18,000;[iv]. The;truck's cost of capital is 10 percent.;What is its NPV?;a. -$1,547;b. -$ 562;c.;$ 0;d.;$ 562;e.;$1,034.


Paper#50985 | Written in 18-Jul-2015

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