Title: Evaluation of a Special-Purpose Truck AcquisitionDescription: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- $24,417Graph/Diagram Description:There are no graphs or diagrams in this scenario. The information is presented in a question format with multiple-choice answers.

The three year MACRS rate for truck would be 33.33%; 44.45%; 14.81% and 7.41%. The second year…

Answered: What will the operating cash flow for…

Business

Accounting

What will the operating cash flow for this project be during year 2?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

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

Graph/Diagram Description:
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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