Question

# 37) You are evaluating a potential purchase of several light-duty trucks. The initial cost of the...

37) You are evaluating a potential purchase of several light-duty trucks. The initial cost of the trucks will be \$196,000. The trucks fall in the MACRS 5-year class that allows depreciation of 20% the first year, 32% the second year, 19% the third year, 12% the fourth year, 11% the fifth year, and 6% the sixth year. You expect to sell the trucks for 29,400 at the end of five years. The expected revenue associated with the trucks is \$148,000 per year with annual operating costs of \$74,000. The firm's marginal tax rate is 20.0%. What is the after-tax operating cash flow for year 4?

 \$63,904
 \$40,384
 \$59,200
 \$50,480
 \$23,520

\$63,904

Working:

 After-tax operating cash flow for year 4: Revenue \$       1,48,000 operating costs \$         -74,000 Depreciation (196000*12%) \$         -23,520 Earning before tax a \$           50,480 Tax Expense b=a*20.0% \$           10,096 Net Income c=a-b \$           40,384 Depreciation \$           23,520 Operating Cash flow \$           63,904

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