You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck.

You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck. The truck’s basic price is $50,000, and it will cost another $10,000 to modify it for special use by your firm. The truck falls in the MACRS 3-year class, and it will be sold after three years for $20,000. The applicable depreciation rates are 33%, 45%, 15%, and 7%. Use of the truck will require an increase in net operating working capital (spare parts inventory) of $2,000. The truck will have no effect on revenues, but it is expected to save the firm $20,000 per year in before-tax operating costs, mainly labor. The firm’s marginal tax rate is 40%. If the WACC is 10%, what is the project NPV?

Expert Solution

jeff jeffy answered 2 years ago

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You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck.

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