Truck Acquisition You Have Been Asked by the President of Your Company

question 126

Multiple Choice

Truck Acquisition
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 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.
-Refer to Truck Acquisition.What is the supplemental operating cash flow in Year 1?

• A) $17,820
• B) $18,254
• C) $19,920
• D) $20,121
• E) $21,737