You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $70,000. The truck falls into the MACRS 3-year class, is not eligible for either bonus depreciation or Section 179 expensing, and it will be sold after three years for $19,000. Use of the truck will require an increase in NWC (spare parts inventory) of $1,000. The truck will have no effect on revenues, but it is expected to save the firm $24,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) O Answer is complete but not entirely correct. Year 1 FCF 71,000.00 X S 23,859.51 O $ 25,494.15 $ 40,137.07
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $70,000. The truck falls into the MACRS 3-year class, is not eligible for either bonus depreciation or Section 179 expensing, and it will be sold after three years for $19,000. Use of the truck will require an increase in NWC (spare parts inventory) of $1,000. The truck will have no effect on revenues, but it is expected to save the firm $24,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) O Answer is complete but not entirely correct. Year 1 FCF 71,000.00 X S 23,859.51 O $ 25,494.15 $ 40,137.07
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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
Transcribed Image Text:### Project Evaluation: Special-Purpose Truck Acquisition
**Context:**
You have been tasked with evaluating the proposed acquisition of a new special-purpose truck worth $70,000. The truck falls under the MACRS 3-year class, is not eligible for bonus depreciation or Section 179 expensing, and is planned to be sold after three years for $19,000. It requires an increase in Net Working Capital (spare parts inventory) of $1,000. The truck will not affect revenues but is expected to save $24,000 per year in operating costs (mainly labor). The firm's marginal tax rate is 21%.
**Cash Flow Analysis:**
The table below summarizes the Free Cash Flows (FCF) for this project over a three-year period. Note that negative amounts should be indicated by a minus sign, and all answers are rounded to two decimal places.
| Year | 0 | 1 | 2 | 3 |
|------|-------------|----------|----------|----------|
| FCF | $71,000.00 | $23,859.51 | $25,494.15 | $40,137.07 |
**Explanation:**
- **Year 0:** The initial cost of the truck is an outflow of $71,000.
- **Year 1-2:** Represents the FCF generated from the operating cost savings, adjusted for taxes.
- **Year 3:** Includes both the operational savings and the salvage value minus tax effects.
**Graph/Diagram Description:**
There is no graphical representation in this image. The focus is on a tabular display of cash flows associated with the truck acquisition project.
**Notes:**
- The answer provided is flagged as complete but not entirely correct, indicating potential calculation or rounding errors.
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