You have been asked by the president of your company to evaluate the proposed ac

Question

You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck. Since you are not an expert on industrial vehicles, you hire a consulting firm to make recommendations. The consultant charged you $1,500 and recommended the purchase of a model CP8 truck. The truck's basic price is $40,000, and it will cost another $10,000 to modify it for special use by your firm. The company expects to sell the new truck after three years for $20,000 (salvage value). Use of the truck will require an increase in the company's net working capital of $2,000. Use of the truck is expected to increase the firm's EBT by $25,000. The firm's marginal tax rate is 40%. What is the annual after-tax cash flows for the new truck project? A) $25,000 B) $5,100 C) $31,600 D) $21,600 What is the terminal cash flow for the truck project? A) $23,600 B) $27,000 C) $25,000 D) $21,600

Explanation / Answer

Initial outlay : Ignore consulation fee of $1500 as it has already been spent basic price of $40,000 modification $10,000 working capital $2,000 Total = 52,000. It is possible to work out the Net present Value of the truck with the information provided

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.