7-25) an office supply company has puchased a lightduty delivery truck for $18,0

Question

7-25) an office supply company has puchased a lightduty delivery truck for $18,000. the truck will be depreciated under the MACRS with a property class of 5 years. It is anticipated that the purchase of the truck will increase the companys revenue by $10,000 annually, whereas the associated operating expenses are expected to be $3,500 annually. The company has an effective income tax rate of 40%, and its after tax MARR is 15% per year. If the company plans to keep the truck only 2 years, what would be the equivalent after-tax annual worth of this investment? (7.9)

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Explanation / Answer

EAC intial investment= 18000 * 0.15/[1-(1+0.15)^-2] = 11072.09

EAC operating expenses = 3500 * 0.15/[1-(1+0.15)^-2] = 2152.91

EAC = 11072.09 + 2152.91 = 13225

EAB = 10000

EAW = 10000 - 13225 = -3225

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