Lane Construction Ltd. is considering the acquisition of a new 18-wheeler.• The truck’s base price is $80,000, and it will cost another $20,000 to modify itfor special use by the company.• This truck falls into the MACRS five-year class.• It will be sold after three years (project life) for $30,000.• The truck purchase will have no effect on revenues, but it is expected to savethe firm $45,000 per year in before-tax operating costs, mainly in leasingexpenses.• The firm’s marginal tax rate (federal plus state) is 40%, and its MARR is 15%.What is the net present worth of this acquisition?(a) -$45,158 (loss) (b) $532(c) -$1,677 (loss) (d) $2,742
Lane Construction Ltd. is considering the acquisition of a new 18-wheeler.• The truck’s base price is $80,000, and it will cost another $20,000 to modify itfor special use by the company.• This truck falls into the MACRS five-year class.• It will be sold after three years (project life) for $30,000.• The truck purchase will have no effect on revenues, but it is expected to savethe firm $45,000 per year in before-tax operating costs, mainly in leasingexpenses.• The firm’s marginal tax rate (federal plus state) is 40%, and its MARR is 15%.What is the net present worth of this acquisition?(a) -$45,158 (loss) (b) $532(c) -$1,677 (loss) (d) $2,742
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
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Question
Lane Construction Ltd. is considering the acquisition of a new 18-wheeler.
• The truck’s base price is $80,000, and it will cost another $20,000 to modify it
for special use by the company.
• This truck falls into the MACRS five-year class.
• It will be sold after three years (project life) for $30,000.
• The truck purchase will have no effect on revenues, but it is expected to save
the firm $45,000 per year in before-tax operating costs, mainly in leasing
expenses.
• The firm’s marginal tax rate (federal plus state) is 40%, and its MARR is 15%.
What is the net present worth of this acquisition?
(a) -$45,158 (loss) (b) $532
(c) -$1,677 (loss) (d) $2,742
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