You are considering the proposed acquisition of a truck for the firm. The truck has a...

You are considering the proposed acquisition of a truck for the firm. The truck has a
base price of Tk. 300,000 and it will take another Tk.50,000 to modify it for the
intended use. The truck has a life of 5 years and after that period it can be sold for Tk.
100,000. The use of truck will require an increase in the net operating working capital
of Tk. 10,000. The truck will reduce cost by Tk. 55,000 in before tax operating cost
and revenue. The firm’s marginal tax rate is 40%. If the project’s cost of capital is
12%, should the truck be purchased? The truck falls in MACRS 5-year class. The
applicable depreciation rates are 20%, 32%, 19%, 12%, 12% and 5%.

Solutions

Expert Solution

After tax salvage Value = Sale value - (sale Value - Book Value of truck)* Tax rate

After tax salvage Value = 100000 - (100000 - 350000*5%)* 40%

After tax salvage Value = $67000

*Please comment if you face any difficulty and please don't forget to provide positive rating*

jeff jeffy answered 1 year ago

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