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 (spareparts 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 yearin 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

Cash flows in during year 3 will be calculated by using equation below.Cash flows in year 3 =…

Answered: You have been asked by the president of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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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 $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?
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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?
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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
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you have been asked by the president of your company to evaluate the proposed acquisition of a new special purpose truck for $70,000. The Truck falls into the MACRS three-year class, and it will be sold after 3 years for $5,000. Use of the truck will require an increase in NWC of $10,000. The truck will have no effect on revenues, but it is expected to save the firm $32,000 per year in before-tax operating costs, mainly labour. The firm's marginal tax rate is 40 percent. What will the operating cashflow for this project be during year 2?

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