Phoenix 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(d)$2,742
Phoenix 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(d)$2,742
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
Related questions
Question
Phoenix 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
(d)$2,742
Expert Solution
Trending now
This is a popular solution!
Step by step
Solved in 10 steps with 17 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Fundamentals Of Financial Management, Concise Edi…
Finance
ISBN:
9781337902571
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning
Fundamentals Of Financial Management, Concise Edi…
Finance
ISBN:
9781337902571
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning