
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Concept explainers
Topic Video
Question
Ht.17.
![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_thumbnail.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"]
Expert Solution

This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution
Trending nowThis is a popular solution!
Step by stepSolved in 3 steps with 2 images

Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- SML and WACC [LO1] An all-equity firm is considering the following projects: Project W X Y Z Beta 0.80 0.90 1.45 1.60 Expected Return 10% 12 13 15 The T-bill rate is 5 percent, and the expected return on the market is 11 percent. a. Which projects have a higher expected return than the firm's 11 percent cost of capital? b. Which projects should be accepted? c. Which projects would be incorrectly accepted or rejected if the firm's overall cost of capital were used as a hurdle rate?arrow_forwardExplain what is included in Form 10-Q and why is it needed.arrow_forwardI asked for S5-6arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education

Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,



Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,

Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education