You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $50,000. The truck fallsinto the MACRS three-year class, and it will be sold after three years for $5,000. Use of the truck will require an increase in NWC (spare parts inventory)of $2,000. 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. Thefirm's marginal tax rate is 21 percent. What will the operating cash flow for this project be during year 2?Multiple Choice$21,890$22.225$22,690$24,417< Prey13 of 14Next >Google ChromeMacBook Air80888DIIDDF2F3F4F5F6F7F8F9F10F12%23$&

The three year MACRS rate for truck would be 33.33%; 44.45%; 14.81% and 7.41%. The second year…

Answered: What will the operating cash flow for…

Business

Accounting

What will the operating cash flow for this project be during year 2?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

See similar textbooks

Similar questions

Dauten is offered a replacement machine which has a cost of 8,000, an estimated useful life of 6 years, and an estimated salvage value of 800. The replacement machine is eligible for 100% bonus depreciation at the time of purchase- The replacement machine would permit an output expansion, so sales would rise by 1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by 1,500 per year The new machine would require that inventories be increased by 2,000, but accounts payable would simultaneously increase by 500. Dautens marginal federal-plus-state tax rate is 25%, and its WACC is 11%. Should it replace the old machine?
The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500, and it is expected to generate net after-tax operating cash flows, including depreciation, of $6,250 per year. The truck has a 5-year expected life. The expected salvage values after tax adjustments for the truck are given here. The company’s cost of capital is 10%. Should the firm operate the truck until the end of its 5-year physical life? If not, then what is its optimal economic life? Would the introduction of salvage values, in addition to operating cash flows, ever reduce the expected NPV and/or IRR of a project?
Alfredo Company purchased a new 3-D printer for $900,000. Although this printer is expected to last for ten years, Alfredo knows the technology will become old quickly, and so they plan to replace this printer in three years. At that point, Alfredo believes it will be able to sell the printer for $15,000. Calculate yearly depreciation using the double-declining-balance method.
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $60,000. The truck falls into the MACRS 3-year class, and it will be sold after three years for $19,500. Use of the truck will require an increase in NWC (spare parts inventory) of $1,500. The truck will have no effect on revenues, but it is expected to save the firm $20,500 per year in before-tax operating costs, mainly labor. The firm’s marginal tax rate is 35 percent.What will the cash flows for this project be?
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $370,000. The truck falls into the MACRS 3-year class, and it will be sold after 3 years for $62,000. Use of the truck will require an increase in NWC (spare parts inventory) of $6,200. The truck will have no effect on revenues, but its expected use at your company will save the firm $100,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What will the cash flows for this project be during year 3?
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $240,000. The truck falls into the MACRS 7-year class, and it will be sold after 7 years for $24,000. Use of the truck will require an increase in NWC (spare parts inventory) of $5,400. The truck will have no effect on revenues, but it is expected to save the firm $102,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What will the operating cash flows for this project be during year 2? Multiple Choice A. $92,923 B. $96,600 C. $43,224 D. $139,356
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $330,000. The truck falls into the MACRS 3-year class, and it will be sold after 3 years for $58,000, Use of the truck will require an increase in NWC (spare parts inventory) of $5,800. The truck will have no effect on revenues, but its expected use at your company will save the firm $85,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What will the cash flows for this project be during year 3? Multiple Choice $116,023 $77,413 $281.540
You have been asked by the president of your company to evaluate the proposed acquisition of a new special purpose truck for $280,000. The truck falls into the MACRS 10-year class, and it will be sold after 10 years for $53,000. Use of the truck will require an increase in NWC (spare parts inventory) of $5,300. The truck will have no effect on revenues, but it is expected to save the firm $83,000 per year in before tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What will the cash flows for this project be during year 3? Multiple Choice $105,890 $74,037 $28,000 $33.717
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $390,000. The truck falls into the MACRS 7-year class, and it will be sold after 7 years for $64,000. Use of the truck will require an increase in NWC (spare parts inventory) of $6,400. The truck will have no effect on revenues, but its expected use at your company will save the firm $102,000 per year in before - tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What will the cash flows for this project be during year 3?
ou have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $120,000. The truck falls into the MACRS 7-year class, and it will be sold after 7 years for $12,000. Use of the truck will require an increase in NWC (spare parts inventory) of $4,200. The truck will have no effect on revenues, but it is expected to save the firm $52,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What will the operating cash flows for this project be during year 2?
Phoenix Construction Ltd. is considering the acquisition of a new 18-wheeler. The truck's base price is $80,000, and it will cost another $20,000 to modify it for special use by the company. This truck falls into the MACRS five-year class. It will be sold after three years (project life) for $30,000. The truck purchase will have no effect on revenues, but it is expected to save the firm $45,000 per year in before-tax operating costs, mainly in leasing expenses. The firm's marginal tax rate (federal plus state) is 40%, and its MARR is 15%.What is the net present worth of this acquisition?(a) -$45,158 (loss)(b)$532(c) $1,677(d)$2,742
Lane Construction Lld. is considering the acquisition o( a new dump truck. The truck's base price is $75,000, and it will cost another $ 15,000 to modify it for special use by the company. This truck falls into the MACRS five-year class. It will be sold after five years for $20.000. ll1e truck purchase will have no effect on revenues. but it is expected to save the firm $35.000 per year in before-tax operating costs mainly in leasing expenses. TI1e firm 's marginal tax rate (federal plus stare) is 40%, and its MARR is 15%.(a) Is this project acceptable based on the most likely estimates given in theproblem?(b) If the firm 's MARR is increased to 20%, what would be the required savings in leasing so that the project would remain profitable?(c) If the projected savings figure is only $25,000, would you still recommend the project?