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    Capital Budgeting: Year 0 net cash flow

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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 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 into the MACRS three-year class, and it will be sold after three years for $20,000. Use of the truck will require an increase in net operating working capital (spare parts inventory) of $2,000. The truck will have no effect on revenues, but it is expected to save the firm $20,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 40 percent.

    What is the net investment in the truck? (That is, what is the Year 0 net cash flow?)

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    https://brainmass.com/business/cash-budgeting/capital-budgeting-year-0-net-cash-flow-131297

    Solution Preview

    You have been asked by the president of your company to evaluate 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 into the MACRS three-year class, and ...

    Solution Summary

    The net investment in the truck, that is, the Year 0 net cash flow is determined.

    $2.19

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