HaulCo is considering the purchase of a truck. Over its five year life, it will provide netrevenues of $17,000 per year at an initial cost of $72,000 and a salvage value of $21,000.HaulCo pays 35% in taxes, the CCA rate for trucks is 30%, and the after tax MARR is 12%.(a) What is the after tax annual cost or worth of this purchase?(b) Should HaulCo pursue this project? Why or why not?

HaulCo is considering the purchase of a truck. Over its five year life, it will provide revenues of $17,000 per year at an initial cost of $72,000 and a salvage value of $2 HaulCo pays 35% in taxes, the CCA rate for trucks is 30%, and the after tax MARR is (a) What is the after tax annual cost or worth of this purchase? (b) Should HaulCo pursue this proiect? Why or why not?

HaulCo is considering the purchase of a truck. Over its five year life, it will provide revenues of $17,000 per year at an initial cost of $72,000 and a salvage value of $2 HaulCo pays 35% in taxes, the CCA rate for trucks is 30%, and the after tax MARR is (a) What is the after tax annual cost or worth of this purchase? (b) Should HaulCo pursue this proiect? Why or why not?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 22P: The Scampini Supplies Company recently purchased a new delivery truck. The new truck cost $22,500,...

See similar textbooks

Similar questions

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?
The Perez Company has the opportunity to invest in one of two mutually exclusive machines that will produce a product it will need for the foreseeable future. Machine A costs $10 million but realizes after-tax inflows of $4 million per year for 4 years. After 4 years, the machine must be replaced. Machine B costs $15 million and realizes after-tax inflows of $3.5 million per year for 8 years, after which it must be replaced. Assume that machine prices are not expected to rise because inflation will be offset by cheaper components used in the machines. The cost of capital is 10%. By how much would the value of the company increase if it accepted the better machine? What is the equivalent annual annuity for each machine?
HaulCo is considering the purchase of a truck. Over its five year life, it will provide net revenues of $17,000 per year at an initial cost of $72,000 and a salvage value of $21,000. HaulCo pays 35% in taxes, the CCA rate for trucks is 30%, and the after tax MARR is 12%. (a) What is the after tax annual cost or worth of this purchase? (b) Should HaulCo pursue this project? Why or why not?
A road construction company is considering the purchase of a gravel hauler as it prepares for a new season of rural road construction. The hauler will cost $110,000, last six years with a salvage value of $20,000, and reduce annual maintenance, insurance, and labour costs by $30,000 per year. The after-tax MARR is 9% and the corporate tax rate is 55%. a. What is the exact after-tax IRR for this purchase? b. What is the approximate after-tax IRR for this purchase? c. Should the company buy the gravel hauler? Why or why not?
A company is planning to buy a new truck that will cost P700,000 and will be depreciated on a straight-line basis over 5-year period. The new truck will replace another that has a book value of P450,000 and five years useful life remaining. The old truck can be sold for P400,000. The current tax rate is 35%. How much is the net initial investment for the new truck?
Billy Bob's Monster Trucks is considering the purchase of some new vehicles. The total cost for the vehicles is $202,400 and they are to be depreciated straight-line to zero over 10 years. The vehicles will be used for 5 years, after which they can be sold for $25,300. If the relevant tax rate is 30 percent, what is the after-tax cash flow from the sale of this asset? (Do not round your intermediate calculations.) NOTE: Taxes are affected when the asset is sold at either a gain or loss over book value. Multiple Choice O $45,666 $17,710 $48,070 $336,502 $50,474 ↓
Pulaski Starlight Inc. is evaluating a project. The project is expected to generated new sales of $1,718,798 and incur costs of $606,990 annually. The project will be depreciated using the MACRS approach. The equipment needed for the project will cost $4,495,137 and is considered to be a five year MACRS class. The company's tax rate is 28%. Given this information, what would be the project's third year operating cash flow? Answer in dollars and cents.
A new delivery truck can be purchased for $30,000. The old one could be sold today for $5,000, and has a book value of $3,000. In three years, the old truck will have a salvage value of $1,000 (and no book value). The new truck would be depreciated on a 5 year MACRS schedule. The firm’s tax rate is 21%. If the old truck is sold and the new one bought, and the new truck will save the firm $1,000 a year in gas expenses, and assuming the new truck would have a salvage value of $10,000 in year 3, what is the replacement project's NPV if the firm’s WACC is 15%? (Round to the nearest dollar and do not enter a dollar sign)
ACDC Company is considering the installation of a new machine that costs $150,000. The machine is expected to lead to net income of $44,000 per year for the next 5 years. Using straight-line depreciation, $0 salvage value, and an effective income tax rate of 28%, determine the after-tax rate of return for this investment. If the company’s after-tax MARR rate is 12%, would this be a good investment or not?
McPherson Company must purchase a new milling machine. The purchase price is $50,000, including installation. The machine has a tax life of 5 years, and it can be depreciated according to the following rates. The firm expects to operate the machine for 4 years and then to sell it for $12,500. If the marginal tax rate is 40%, what will the after-tax salvage value be when the machine is sold at the end of Year 4? Depreciation Rate Year Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 a. $10,900 b. $9,837 c. $8,878 d. $9,345 e. $10,335 0.20 0.32 0.19 0.12 0.11 0.06
Your firm needs a machine which costs $190,000, and requires $34,000 in maintenance for each year of its 3 year life. After 3 years, this machine will be replaced. The machine falls into the MACRS 3-year class life category. Assume a tax rate of 35% and a discount rate of 12%. If this machine can be sold for $19,000 at the end of year 3, what is the after tax salvage value?
Johnny Dear Inc. is examining the possibility of purchasing harvesting machinery for $147,500 that is expected to be sold at the end of 10 years for $500. The machinery will generate benefits of $24,550 per year and will have maintenance costs of $3,203 per year. Johnny Dear Inc. will use an interest rate of 7% and a straight-line depreciation method. Due to the next tax code the company has a flat tax rate of 21%. Calculate the project's after-tax benefit cost ratio. Remember to use two decimal points