Fink Co. is interested in purchasing a new business vehicle. The vehicle costs $85,000 and will generate constant-dollar delivery revenue of $24,000 (year O dollars) for each of the next 6 years. At the end of the 6 years, the vehicle will have a salvage value of $6,000. The tax rate is 21%, and annual inflation is 3%. Assuming that the vehicle is depreciated using MACRS (5-year property class) and that Fink Co. uses an after-tax real interest MARR of 11%, compute the PW, and determine whether Fink Co. should purchase the new business vehicle.
Fink Co. is interested in purchasing a new business vehicle. The vehicle costs $85,000 and will generate constant-dollar delivery revenue of $24,000 (year O dollars) for each of the next 6 years. At the end of the 6 years, the vehicle will have a salvage value of $6,000. The tax rate is 21%, and annual inflation is 3%. Assuming that the vehicle is depreciated using MACRS (5-year property class) and that Fink Co. uses an after-tax real interest MARR of 11%, compute the PW, and determine whether Fink Co. should purchase the new business vehicle.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Fink Co. is interested in purchasing a new business vehicle. The vehicle costs $85,000
and will generate constant-dollar delivery revenue of $24,000 (year O dollars) for each of
the next 6 years. At the end of the 6 years, the vehicle will have a salvage value of $6,000.
The tax rate is 21%, and annual inflation is 3%. Assuming that the vehicle is depreciated
using MACRS (5-year property class) and that Fink Co. uses an after-tax real interest
MARR of 11%, compute the PW, and determine whether Fink Co. should purchase the
new business vehicle.
Click here to access the TVM Factor Table calculator.
Click here to access the MACRS-GDS Property Classes.
Click here to access the MACRS-GDS percentages page.
Click here to access the MACRS-GDS percentages for 27.5-year residential rental
property.
2$
Carry all interim calculations to 5 decimal places and then round your final answer to 2
decimal places. Use a minus sign to enter your answer, if any. The tolerance is $10.00.
Should Fink Co. purchase the delivery vehicle?
Yes
Not enough information
to determine
No
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