Fundamentals of Engineering Economics 3rd Edition by Chan Park

Exercise 2

Lane Construction Ltd. is considering the acquisition of a new dump truck. The truck's base price is $75,000, and it will cost another $15,000 to modify it for special use by the company. This truck falls into the MACRS five-year class. It will be sold after five years for $20,000. The truck purchase will have no effect on revenues, but it is expected to save the firm $35,000 per year in before-tax operating costs mainly in leasing expenses. The firm's marginal tax rate (federal plus state) is 40%, and its MARR is 15%.
(a) Is this project acceptable based on the most likely estimates given in the problem?
(b) If the firm's MARR is increased to 20%, what would be the required savings in leasing so that the project would remain profitable?
(c) If the projected savings figure is only $25,000, would you still recommend the project?