The truck's base price is $600,000. Due to the technical complexity of the vehicle, the company will have to pay $1,000 to train a "driver" before the truck can be put into operation. Assume the truck falls into the MACRS 5-year class. If purchased for this pilot project, the company expects to use the truck for two years and then sell it at the end of the second year. The expected market value of the truck at the end of the second year is $310,000. Use of the truck will require an increase in inventory of $4,000 and accounts payable are expected to increase by $3,000. The truck is expected to increase the firm's revenue by $145,000 per year and it is expected to increase operating expenses by $75,000 per year. Last month a consultant was paid $2,000 to do a similar analysis and recommended that the truck be purchased, the firm has hired you for a second opinion. The firm's marginal tax rate is 25 percent and the cost of capital is 10 percent. 5-Year MACRS RATES Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 20.00% 32.00% 19.20% 11.52% 11.52% 5.76%
The truck's base price is $600,000. Due to the technical complexity of the vehicle, the company will have to pay $1,000 to train a "driver" before the truck can be put into operation. Assume the truck falls into the MACRS 5-year class. If purchased for this pilot project, the company expects to use the truck for two years and then sell it at the end of the second year. The expected market value of the truck at the end of the second year is $310,000. Use of the truck will require an increase in inventory of $4,000 and accounts payable are expected to increase by $3,000. The truck is expected to increase the firm's revenue by $145,000 per year and it is expected to increase operating expenses by $75,000 per year. Last month a consultant was paid $2,000 to do a similar analysis and recommended that the truck be purchased, the firm has hired you for a second opinion. The firm's marginal tax rate is 25 percent and the cost of capital is 10 percent.
5-Year MACRS RATES
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
20.00% 32.00% 19.20% 11.52% 11.52% 5.76%
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