ou have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $120,000. The truck falls into the MACRS 7-year class, and it will be sold after 7 years for $12,000. Use of the truck will require an increase in NWC (spare parts inventory) of $4,200. The truck will have no effect on revenues, but it is expected to save the firm $52,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What will the operating cash flows for this project be during year 2?
ou have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $120,000. The truck falls into the MACRS 7-year class, and it will be sold after 7 years for $12,000. Use of the truck will require an increase in NWC (spare parts inventory) of $4,200. The truck will have no effect on revenues, but it is expected to save the firm $52,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What will the operating cash flows for this project be during year 2?
Operating Cash Flow:
The net amount of cash that a company generates from its operating activities is known as operating cash flow.
It excludes any financial or investing activity.
Since a company needs positive cash flow to sustain and expand its activities over time, this information is used to assess the viability of its primary operations.
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