You Have Been Asked by the President of Your Company

question 103

Multiple Choice

You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $50,000. The truck falls into the MACRS three-year class, and it will be sold after three years for $5,000. Use of the truck will require an increase in NWC (spare parts inventory) of $2,000. The truck will have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 21 percent. What will the operating cash flow for this project be during year 2?

• A) $21,890
• B) $22,225
• C) $22,690
• D) $24,417

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Definitions:

Midwest

A geographic region of the United States that includes states like Illinois, Michigan, and Ohio, often characterized by its agricultural industry.

1930s

The decade from 1930 to 1939, marked by the Great Depression, economic struggles, and the buildup to World War II.

Reader's Digest

A monthly American general-interest family magazine, compact in size and known for its handpicked articles on various topics.

Saturday Evening Post

A historic American magazine that has been published in various forms since 1821, known for its journalism, fiction, and iconic cover art.