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

Waterway Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company’s current truck (not the least of which is that it runs). The new truck would cost $57,000. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $7,500. At the end of 8 years, the company will sell the truck for an estimated $28,100. Traditionally the company has used a rule of thumb that a proposal should not be accepted unless it has a payback period that is less than 50% of the asset’s estimated useful life. Larry Newton, a new manager, has suggested that the company should not rely solely on the payback approach, but should also employ the net present value method when evaluating new projects. The company’s cost of capital is 8%. Compute the cash payback period and net present value of the proposed investment. (If the net present value is negative, use either a negative sign…

Dobbs Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company's current truck (not the least of which is that it runs). The new truck would cost $55,981. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $8,900. At the end of eight years, the company will sell the truck for an estimated $28,400. Traditionally, the company has used a general rule that it should not accept a proposal unless it has a payback period that is less than 50% of the asset's estimated useful life. Pavel Chepelev, a new manager, has suggested that the company should not rely only on the payback approach but should also use the net present value method when evaluating new projects. The company's cost of capital is 8%. 1. Calculate the cash payback period and net present value of the proposed investment.

A construction company is considering the proposed acquisition of a newearthmover. The purchase price is $100,000, and an additional $25,000 is required to modify the equipment for special use by the company. The equipment falls into the MACRS five-year classification (tax life). and it will be sold after five year. (project life) for $50,000. Purchase of the earthmover will have no effect on revenues. but it is expected 10 save the firm $60,000 per year in before-tax operating costs-mainly labor.The firm's marginal tax rate is 40%. Assume that the initial investment is to be financed. by a bank loan at an intrest rate of 10% payable annually. Determine that after-tax cash flow and the worth of investment for this project if the firm's  MARR is known to be 12°o.

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?

You must evaluate a proposal to buy a new milling machine. The base price is $101,000, and shipping and installation costs would add another $12,000. The machine falls into the MACRS 3-year class, and it would be sold after 3 years for $45,450. The applicable depreciation rates are 33%, 45%, 15%, and 7%. The machine would require a $4,500 increase in net operating working capital (increased inventory less increased accounts payable). There would be no effect on revenues, but pretax labor costs would decline by $52,000 per year. The marginal tax rate is 35%, and the WACC is 11%. Also, the firm spent $4,500 last year investigating the feasibility of using the machine. What is the initial investment outlay for the machine for capital budgeting purposes, that is, what is the Year 0 project cash flow? Enter your answer as a positive value. Round your answer to the nearest cent.$   What are the project's annual cash flows during Years 1, 2, and 3? Do not round intermediate calculations.…

You must evaluate the purchase of a spectrometer for the R&D department. The base price is $140,000, and it would cost another $30,000 to modify the equipment for special use by the firm. The equipment falls into the MACRS 4 year class and would be sold after 4 years for $60,000. The applicable depreciation rates are 33%, 45%, 15% and 7%. The equipment would require an $8000 increase in net operating working capital. The project would have no effect on revenues, but it should save the firm $50,000 per year before-tax labour costs. The firm's marginal federal-plus state tax rate is 40%. QUESTION:What is the initial investment outlay for the spectrometer, that is, what is the year 0 project cash flow?

Riverview Company is evaluating the proposed acquisition of a new production machine. The machine's base price is $200,000, and installation costs would amount to $28,000. Also, $10,000 in net working capital would be required at installation. The machine will be depreciated for 3 years using simplified straight line depreciation. The machine would save the firm $110,000 per year in operating costs. The firm is planning to keep the machine in place for 5 years. At the end of the fifth year, the machine will be sold for $20,000. Riverview has a cost of capital of 12% and a marginal tax rate of 34%. What is the IRR of the project? 14.1% O 31.3% 9.5% O 28.2% O 19.7%

Santana Rey is considering the purchase of equipment for Business Solutions that would allow the company to add a new product to its computer furniture line. The equipment is expected to cost $280,000 and to have a five-year life and no salvage value. It will be depreciated on a straight-line basis. Business Solutions expects to sell 100 units of the equipment’s product each year. The expected annual income related to this equipment follows. Sales $ 385,000 Costs Materials, labor, and overhead (except depreciation) 193,000 Depreciation on new equipment 56,000 Selling and administrative expenses 32,000 Total costs and expenses 281,000 Pretax income 104,000 Income taxes (30%) 31,200 Net income $ 72,800 Required: (1) Compute the payback period. (2) Compute the accounting rate of return for this equipment.