Determine net investment

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(Cash flows and NPV for a new project) Syracuse Roadbuilding Company is considering the purchase of a new tandem box dump truck. The truck costs $95,000, and an additional $5,000 is needed to paint it with the firm logo and install radio equipment. Assume the truck falls into the MACRS three-year class. The truck will generate no additional revenues, but it will reduce cash operating expenses by $35,000 per year. The truck will be sold for $40,000 after its five-year life. An inventory investment of $4,000 is required during the life of the investment. Syracuse Roadbuilding is in the 45% income tax bracket.

1. What is the net investment?

2. What is the after-tax net operating cash flow for each of the five years?

3. What is the after-tax salvage value?

4. Assuming a 10% cost of capital, what is the NPV of this investment?

 

Reference no: EM1352542

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