Watkins Construction and Engineering won a bid with the Growth and Environmental Management Department that will generate them $15,000 revenue/per year over the next three years. The project requires an acquisition of a new earth mover. The mover's basic price is $40,000; it would cost another $10,000 to modify it for special use. The equipment falls in the 3-year MACRS class (33%, 45%, 15%,7%) and will be sold after three years for $20,000. Tax rate is 40%. The earth mover will also save the firm $20,000 per year in before-tax costs. The project will also require an upfront investment of $2,000 in NOWC with 100% recovery of it at the end of the project. Compute the incremental cash flows for this project
Watkins Construction and Engineering won a bid with the Growth and Environmental Management Department that will generate them $15,000 revenue/per year over the next three years. The project requires an acquisition of a new earth mover. The mover's basic price is $40,000; it would cost another $10,000 to modify it for special use. The equipment falls in the 3-year MACRS class (33%, 45%, 15%,7%) and will be sold after three years for $20,000. Tax rate is 40%. The earth mover will also save the firm $20,000 per year in before-tax costs. The project will also require an upfront investment of $2,000 in NOWC with 100% recovery of it at the end of the project. Compute the incremental cash flows for this project
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:Watkins Construction and Engineering won a bid with the Growth
and Environmental Management Department that will generate them
$15,000 revenue/per year over the next three years. The project
requires an acquisition of a new earth mover. The mover's basic price
is $40,000; it would cost another $10,000 to modify it for special use.
The equipment falls in the 3-year MACRS class (33%, 45%, 15%, 7%)
and will be sold after three years for $20,000. Tax rate is 40%. The
earth mover will also save the firm $20,000 per year in before-tax
costs. The project will also require an upfront investment of $2,000 in
NOWC with 100% recovery of it at the end of the project. Compute
the incremental cash flows for this project.
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