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NEW QUESTION: 1
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 into the MACRS three-year class, and it will be sold after three years for $20,000. Use of the truck will require an increase in net 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 percent. What is the net investment in the truck?
A. -$50,000
B. -$55,800
C. -$52,600
D. -$62,000
E. -$65,000
Answer: D
Explanation:
Explanation/Reference:
Explanation:
Initial investment:
Cost($50,000)
Modification(10,000)
Change in NWC(2,000)
Total net investment =($62,000)
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