Lane Construction Ltd. is considering the acquisition of a new eighteen-wheeler.
• The truck's base price is $80,000, and it will cost another $20,000 to modify it for special use by the
company.
• This truck falls into the MACRS five-year class. It will be sold after three years for $30,000.
• The truck purchase will have no effect on revenues, but it is expected to save the firm $45,000 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 25%, what would be the required savings in leasing so that the project
would remain profitable?

Question

Quizplus · Accepted Answer

The Answer of Lane Construction Ltd. is considering the acquisition of a new eighteen-wheeler.
• The truck's base price is $80,000, and it will cost another $20,000 to modify it for special use by the
company.
• This truck falls into the MACRS five-year class. It will be sold after three years for $30,000.
• The truck purchase will have no effect on revenues, but it is expected to save the firm $45,000 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 25%, what would be the required savings in leasing so that the project
would remain profitable?