l bave been asked by the president of your company to evaluate the proposed acqu
ID: 2805216 • Letter: L
Question
l bave been asked by the president of your company to evaluate the proposed acquisition of a new secial-purpose truck. The truck's basic price is $54,000, and it will cost another $10,000 so modify it for special spoby your firm. The truck falls into the MACRS three-year class(Yrl 33%, Y2ouYr3 iss Yr4 % and it will be sold after three years for $18,000. Use of the truck will require an increase in niet working capital (spare parts inventory)of$1,500. The truck will have no effect on revenues, but it is expected to save the firm $18,000 per year in beforc-tax operating costs, mainly labor. The firm's marginal tax rate is 34 percent [MACRS table required] 15. Refer to Exhibit 10-1. What is the terminal (nonoperating) cash flow at the ed of Year 3 A) $15,052 B) $14,009 C) $14,754 a. E) $14,903 16. Refer to Exhibit 10-1. What is the initial investment outlay for the truck? (That is, what is the Year 0 net cash flow?) A) -$66,810 B)$70,085 C) -$65,500 D) -$60,260 E)-$68,120 Refer to Exhibit 10-1. What is the incremental operating cash flow in Year 1? A) $19,061 B) $19,823 17. fan 0.49 C) $19,633 D) $19,442 E) $18,108Explanation / Answer
15)
Book value after 3 years = 7%*(10000+54000) = 4480
Salvage value net of tax = 18000 - (18000-4480)*34% = 13403.2
Terminal cashflow = 13403.2 + 1500 = 14903.2 (Option E)
16)
Initial outlay = -10000-54000-1500 = -65500 (Option C)
17)
Operating cashflow = 18000*(1-34%) + (64000*33%)*34% = 19060.8 = 19061 (Option A)
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.