Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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![The following questions are Multiple Choice:
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 $54,000.
The truck will be fully depreciated to 0 using straight line depreciation and it will be sold after three years for $16,000.
The Use of the truck will require an increase in net working capital (spare parts inventory) of $2,000.
The truck will have no effect on revenues, but it is expected to save the firm $22,000 per year in before-tax operating
costs, mainly labor.
The firm's marginal tax rate is 40 percent.
1. What is the initial investment outlay for the truck? (That is, what is the Year 0 net cash flow?) [The multiple answer
choices for this question are: "-$56,000", "-$60,000", "-$62,000", OR "-$65,000"]
2. What is the incremental operating cash flow in Year 1? [The multiple answer choices for this question are: "$20,400",
"$21,000", "$19,400", "$19,000", OR "$19,920"]
3. What is the terminal (nonoperating) cash flow at the end of Year 3? [The multiple answer choices for this question are:
"$11,600", "$17,000", "$15,000", "$14,000", OR "$15,680"]
4. The truck's required rate of return is 10 percent. What is its NPV? [The multiple answer choices for this question are:
"-$3,237", "-$1,480", "-$4", "$3,447", OR "-$1,547"]](https://content.bartleby.com/qna-images/question/00a2e412-d801-42da-87a8-c8c387a19437/0622c5b6-4aec-40a3-aded-0101cd213c5e/7l0cp8_processed.jpeg)
Transcribed Image Text:The following questions are Multiple Choice:
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 $54,000.
The truck will be fully depreciated to 0 using straight line depreciation and it will be sold after three years for $16,000.
The Use of the truck will require an increase in net working capital (spare parts inventory) of $2,000.
The truck will have no effect on revenues, but it is expected to save the firm $22,000 per year in before-tax operating
costs, mainly labor.
The firm's marginal tax rate is 40 percent.
1. What is the initial investment outlay for the truck? (That is, what is the Year 0 net cash flow?) [The multiple answer
choices for this question are: "-$56,000", "-$60,000", "-$62,000", OR "-$65,000"]
2. What is the incremental operating cash flow in Year 1? [The multiple answer choices for this question are: "$20,400",
"$21,000", "$19,400", "$19,000", OR "$19,920"]
3. What is the terminal (nonoperating) cash flow at the end of Year 3? [The multiple answer choices for this question are:
"$11,600", "$17,000", "$15,000", "$14,000", OR "$15,680"]
4. The truck's required rate of return is 10 percent. What is its NPV? [The multiple answer choices for this question are:
"-$3,237", "-$1,480", "-$4", "$3,447", OR "-$1,547"]
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