Please answer questions 1-7 based on the following information: • 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 $40,000, and it will cost another $5,000 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 $6,000. 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 $1,500. • The truck will have no effect on revenues, but it is expected to save the firm $10,000 per year in before-tax operating costs, mainly labor. • The firm's marginal tax rate is 40%. 1. What is CFFA at year 0? a. -$48,500 b. -$46,500 c. -$47,000 d. -$50,000 2. What is depreciation at year 2? a. $20,250 b. $19,800 c. $27,000 d. $18,400 What is CFFA at year 2? a. $10,000 b. $13,220 c. $14,100 d. $22,800 3.

Please answer questions 1-7 based on the following information: • 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 $40,000, and it will cost another $5,000 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 $6,000. 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 $1,500. • The truck will have no effect on revenues, but it is expected to save the firm $10,000 per year in before-tax operating costs, mainly labor. • The firm's marginal tax rate is 40%. 1. What is CFFA at year 0? a. -$48,500 b. -$46,500 c. -$47,000 d. -$50,000 2. What is depreciation at year 2? a. $20,250 b. $19,800 c. $27,000 d. $18,400 What is CFFA at year 2? a. $10,000 b. $13,220 c. $14,100 d. $22,800 3.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 7P

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