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Your firm is considering purchasing a new tractor that would cost $54,000. It would increase pre-tax...

Your firm is considering purchasing a new tractor that would cost $54,000. It would increase pre-tax revenues by $25,000, and pre-tax operating costs (before taking account of depreciation) by $10,000 per year.

The tractor would be depreciated on a straight-line basis to zero (i.e., no salvage value), over 5 years, beginning the first year. (Use the 5-year straight-line depreciation for all analyses and ignore the MACRS half-year convention for this problem.)

Assuming a 40% marginal tax rate, zero salvage value, and a 9% WACC, calculate the NPV of this investment.

Do you recommend this project?

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