What will the operating cash flow for this project be during year 2?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Title: Evaluation of a Special-Purpose Truck Acquisition
Description:
This scenario involves evaluating the acquisition of a new special-purpose truck for your company, costing $50,000. The truck will be part of the Modified Accelerated Cost Recovery System (MACRS) three-year class. It will be sold after three years for $5,000. An increase in Net Working Capital (NWC), specifically spare parts inventory, of $2,000 is required for the truck’s usage. Although the truck will not affect revenue directly, it will save the company $25,000 annually in before-tax operating costs, mainly related to labor. The firm’s marginal tax rate is 21%. The objective is to calculate the operating cash flow for the second year of the project.
Multiple Choice Options:
- $21,890
- $22,225
- $22,690
- $24,417
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There are no graphs or diagrams in this scenario. The information is presented in a question format with multiple-choice answers.
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