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Lane Construction ltd. is considering the acquisition of a new eighteen wheeler.

-The truck base price is $80,000 and it will cost another $20,000 to modify it for special use by the company.
-This truck falls into MACRS five year class. It will be sold after three years for $30,000.
-The truck purchase will have no effect on revenues, but it is expected to save the firm $45,000 per year in before-tax operating costs, mainly in leasing expenses.
-The firm marginal tax rate (federal plus state) is 40%, and its MARR is 15%.

(a) Is this project acceptable, based on the most likely estimates given in the problem?

(b)If the firm's MARR is increased to 25%, what would be the required savings in leasing so that the project would remain profitable?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M948036

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