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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

Essentials Of Investments
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
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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
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