Exhibit 10-1
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck.The truck's basic price is R50,000, and it will cost another R10,000 to modify it for special use by your firm.The truck falls into the MACRS three-year class, and it will be sold after three years for R20,000.Use of the truck will require an increase in net working capital (spare parts inventory) of R2,000.The truck will have no effect on revenues, but it is expected to save the firm R20,000 per year in before-tax operating costs, mainly labor.The firm's marginal tax rate is 40 percent.
[MACRS table required]
-Refer to Exhibit 10-1.The truck's required rate of return is 10 percent.What is its NPV?

Question

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The Answer of Exhibit 10-1
You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck.The truck's basic price is R50,000, and it will cost another R10,000 to modify it for special use by your firm.The truck falls into the MACRS three-year class, and it will be sold after three years for R20,000.Use of the truck will require an increase in net working capital (spare parts inventory) of R2,000.The truck will have no effect on revenues, but it is expected to save the firm R20,000 per year in before-tax operating costs, mainly labor.The firm's marginal tax rate is 40 percent.
[MACRS table required]
-Refer to Exhibit 10-1.The truck's required rate of return is 10 percent.What is its NPV?

Exhibit 10-1 You Have Been Asked by the President of Your Company