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Homework answers / question archive / You have been asked to evaluate the proposed acquisition of a new special-purpose truck
You have been asked to evaluate the proposed acquisition of a new special-purpose truck. The truck's basic price is $50,000, and it costs another $10,000 to modify it for special use by your firm. The truck falls into the MACRS three-year class (33%, 45%, 15%, 7%), and will be sold after three years for $20,000. Use of the truck requires an increase in net operating working capital (spare parts inventory) of $2,000. The truck has no effect on revenues, but 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%. What is the net investment in the truck at Year 0?
Group of answer choices
-$65,000
-$52,600
-$55,800
-$50,000
-$62,000
Net Investment = Purchase price+Modification cost + Working capital
here,
Purchase price= 50000
Modification cost= 10000
Working capital= 2000
Put the values in the formula;
= -50000-10000-2000
=-62000
