Question

In: Finance

you have been asked by the president of your company to evaluate the proposed acquisition of...

you have been asked by the president of your company to evaluate the proposed acquisition of a new special purpose truck for $70,000 , the truck fall into the MACES 3 year class and will be sold after 3 years for $19,900 use of the truck will require a increse in NWC (spare parts inventory) of $1900 , the truck will have no effect on revenues, but is expected to save the firm $23,700 per year in before tax operating costs. the firmmarginal tax rate is 35 percent. What will be the cash flows for the project?

Solutions

Expert Solution

initial investment in truck

cost of truck

-70000

investment in working capital

-1900

cash outflow at year 0

-71900

Year

annual savings

less depreciation

after depreciation savings

less tax 35%

after tax savings

add depreciation

annual saving after tax before depreciation

0

-71900

1

23700

23331

369

129.15

239.85

23331

23570.85

2

23700

31115

-7415

-2595.25

-4819.75

31115

26295.25

3

23700

10367

13333

4666.55

8666.45

10367

29369.35

cash flow in year 3

(8666.45+10367)+10335.9

29369.35

cost of machine

Macrs rate

cost of machine*Macrs rate

70000

33.33%

23331

70000

44.45%

31115

70000

14.81%

10367

accumulated depreciation

64813

selling price of machine

19900

book value of machine at end of year 3

70000-64813

5187

gain on sale of machine

14713

less tax on gain on sale of machine

14714*(1-.35)

9564.1

after tax sale proceeds from sale of machine

19900-9564.1

10335.9

jeff jeffy answered 2 years ago
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