Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

You have been asked by president of your company to appraise the proposed acquisition of a new special-purpose truck. 

• The truck’s basic price is $50,000, and it will cost another $10,000 to modify it for special use by your firm. 

• The truck falls in the MACRS five-year class {MACRS rates as percentages:  20, 32, 19, 12, 11, 6}, and will be sold after two years for $40,000.

• Use of the truck will need a raise in net working capital (spare parts inventory) of $2,000. 

• The truck will have no effect on revenues; however it is anticipated to save the firm $20,000 per year in before-tax operating costs, mainly labor. 

• The firm’s marginal tax rate is 40%.

• The firm’s capital structure is 50% debt & 50% equity.  They evaluate their WACC to be 9.0% using the following inputs:  before-tax cost of debt-10% cost of equity-12%, expected market return-12%, risk-free rate-4%, and beta-1.0.

a)What is the net investment in truck project?  (That is, what is the Year 0 net cash flow?)
   
b)What is the operating cash flows in Year 1 & 2?
   
c)What is NPV of this project?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91616

Have any Question? 


Related Questions in Basic Finance

In the united states voters who are neither democrat nor

In the United States, voters who are neither Democrat nor Republican are called independent. It is believed that 10% of all voters are independent. A survey asked 25 people to identify themselves as Democrat, Republican, ...

I purchase a consol with a coupon payment of 100 when the

I purchase a consol with a coupon payment of $100 when the interest rate is 10 percent. When I sell the consol, the interest rate has risen to 20 percent. What is the amount of my capital gain or loss.

You are a group of analysts assisting a head of equities

You are a group of analysts assisting a head of equities provide investment advice for clients. Using at least 2 methodologies available from the following 4 groups: DDM, FCF, Residual Income, Market Based Valuation/Pric ...

How is a surplus in the current account related to a

How is a surplus in the current account related to a deficit in the capital account? How is a deficit in the current account related to a surplus in the capital account?

Effect on money supply why do the feds open market

Effect on Money Supply : Why do the Fed's open market operations have a different effect on the money supply than do transactions between two depository institutions?

You are put in charge of managing your companys working

You are put in charge of managing your company's working capital. Your company has $1,000, 000 in extra cash on hand and decides to put it in a savings account paying 7% interest compounded annually. How much will you ha ...

Three months ago you purchased a put option on nole stock

Three months ago, you purchased a put option on Nole stock with a strike price of $60 and an option price of $1.02. The option expires today when the value of Nole stock is $62.79 Ignoring trading costs and taxes, what i ...

A small eastern european economy asks your opinion about

A small Eastern European economy asks your opinion about whether they should pursue the path to joining the European Economic and Monetary Union (EMU) or simply "euroize" (i.e., dollarize by using the euro for all domest ...

If the rate of return on the sampp 500 index was 23 for

If the rate of return on the S&P 500 index was 23% for 2009, and the risk-free rate at the end of 2009 was 1%, calculate the equity risk premium for 2009. Recalculate the equity risk premium using 1981 data, when the ris ...

In 2006 ben bernanke said the goals of strong output growth

In 2006, Ben Bernanke said the goals of strong output growth and low inflation "are almost always consistent with each other." Alan Greenspan once called the trade-off between output and inflation "ephemeral." a. Are the ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

A cola-dispensing machine is set to dispense 9 ounces of

A cola-dispensing machine is set to dispense 9 ounces of cola per cup, with a standard deviation of 1.0 ounce. The manuf

What is marketingbullwhat is marketing think back to your

What is Marketing? • "What is marketing"? Think back to your impressions before you started this class versus how you

Question -your client david smith runs a small it

QUESTION - Your client, David Smith runs a small IT consulting business specialising in computer software and techno

Inspection of a random sample of 22 aircraft showed that 15

Inspection of a random sample of 22 aircraft showed that 15 needed repairs to fix a wiring problem that might compromise

Effective hrmquestionhow can an effective hrm system help

Effective HRM Question How can an effective HRM system help facilitate the achievement of an organization's strate