Question

You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $60,000. The truck falls into the MACRS 3-year class, is not eligible for either bonus depreciation or Section 179 expensing, and it will be sold after three years for $20,300. Use of the truck will require an increase in NWC (spare parts inventory) of $2,300. The truck will have no effect on revenues, but it is expected to save the firm $20,100 per year in before-tax operating costs, mainly labor. The firm’s marginal tax rate is 21 percent.

What will the cash flows for this project be? (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)
YEAR: 0, 1, 2, 3

FCF:

Answer 1

Answer is attached below

* Note : Negative tax has been taken as saving in tax, assuming we have other income also to set off such loss

* Note : Tax on salvage value = ( Salvage value - Book Value) * Tax rate

= ( 20300 - 4446) * 0.21

= 3329.24

* Note : Book value = 60000 - 19998 - 26670 - 8886 = 4446