You have been asked by the president of your company to evaluate the proposed ac
ID: 2749893 • Letter: Y
Question
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $200,000. The truck falls into the MACRS 7-year class, and it will be sold after 7 years for $20,000. Use of the truck will require an increase in NWC (spare parts inventory) of $5,000. The truck will have no effect on revenues, but it is expected to save the firm $87,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 35 percent. What will the cash flows for this project be during year 2? (Can you also show how to get depreciation in beginning?)
Explanation / Answer
Answer
Cash Flow For During Year -2
Deperication as per MACRS 7 year class = 200000*24.49% = 48980
Expenses save (A) Deperication (B) Tax @35% (c)= (A-B)*35/100 Cash Flow (D) = (A+B-C) 87000 48980 13307 122673Related Questions
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