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

question 125

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 initial investment outlay for the truck? (That is,what is the Year 0 net cash flow?
)

• A) −$50,000
• B) −$52,600
• C) −$55,800
• D) −$62,000
• E) −$65,000

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Definitions:

Repurchases

The action of buying back previously sold shares or goods.

Insider Trading

The trading in shares of a corporation by a person in a corporation who possesses undisclosed privileged information about the corporation.

Tampering Scandal

A situation involving unauthorized alteration or manipulation, often in a legal, sports, or corporate context, that leads to controversy or legal action.

Insider Trade

Buying or selling of a publicly-traded company's stock by someone who has non-public, material information about that stock.