You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck. The company already spent $15,000 (i.e., sunk cost) in last year to improve the production line site. The truck's basic price is $90,000, and it will cost another $10,000 to modify it for special use by your firm. Use of the truck will require an increase in net operating working capital (spare parts of inventory) of $25,000. The truck falls into the MACRS 3 year class, and it will be sold after three years for $20,000 (salvage value). The truck will increase the sale by $200,000, and the cost of all expenses will be 40% of sales. The firm's marginal tax rate is 40 percent. What is the operating cash flow in Year 1? $120,800 $45,000 $52,200 $98,000 $85,200
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck. The company already spent $15,000 (i.e., sunk cost) in last year to improve the production line site. The truck's basic price is $90,000, and it will cost another $10,000 to modify it for special use by your firm. Use of the truck will require an increase in net operating working capital (spare parts of inventory) of $25,000. The truck falls into the MACRS 3 year class, and it will be sold after three years for $20,000 (salvage value). The truck will increase the sale by $200,000, and the cost of all expenses will be 40% of sales. The firm's marginal tax rate is 40 percent. What is the operating cash flow in Year 1? $120,800 $45,000 $52,200 $98,000 $85,200
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
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You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck. The company already spent $15,000 (i.e., sunk cost) in last year to improve the production line site. The truck's basic price is $90,000, and it will cost another $10,000 to modify it for special use by your firm. Use of the truck will require an increase in net operating working capital (spare parts of inventory) of $25,000. The truck falls into the MACRS 3 year class, and it will be sold after three years for $20,000 (salvage value). The truck will increase the sale by $200,000, and the cost of all expenses will be 40% of sales. The firm's marginal tax rate is 40 percent. What is the operating cash flow in Year 1?
$120,800
$45,000
$52,200
$98,000
$85,200
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