You Have Been Asked by the President of Your Company

question 9

Multiple Choice

You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $250,000. The truck falls into the MACRS three-year class, and it will be sold after three years for $50,000. Use of the truck will require an increase in NWC (spare parts inventory) of $5,000. The truck will have no effect on revenues, but it is expected to save the firm $80,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 40 percent. What will the operating cash flow for this project be during year 3?

• A)$25,785
• B)$62,810
• C)$81,333
• D)$85,025

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