A company considerings acquiring a new heavy-duty truck. The purchase Question 5.3 price is $120,000, and an additional $30,000 is required to modify the equipment for special use by the company. The truck falls into the MACRS seven-year classification (the tax life), and it will be sold after five years (the project life) for $55,000. The purchase of the truck will have no effect on revenues, but it is expected to save the firm $65,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 20%. Assume that the initial investment is to be financed by a bank loan at an interest rate of 10% payable annually. Determine the after-tax cash flows and the net present worth of the investment for this project if the firm's MARR is known to be 15%. A) $118,059 B) $133,600 C) $90,022 D) Answers A, B and C are not correct

A company considerings acquiring a new heavy-duty truck. The purchase Question 5.3 price is $120,000, and an additional $30,000 is required to modify the equipment for special use by the company. The truck falls into the MACRS seven-year classification (the tax life), and it will be sold after five years (the project life) for $55,000. The purchase of the truck will have no effect on revenues, but it is expected to save the firm $65,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 20%. Assume that the initial investment is to be financed by a bank loan at an interest rate of 10% payable annually. Determine the after-tax cash flows and the net present worth of the investment for this project if the firm's MARR is known to be 15%. A) $118,059 B) $133,600 C) $90,022 D) Answers A, B and C are not correct

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 2E

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