What is the operating cash flow in year one

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Reference no: EM131302837

You have been asked by the president of your company to evaluate the proposed acquisition of a new specialpurpose truck. The truck's basic price is $50,000, and it will cost another $10,000 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 $20,000. Use of the truck will require an increase in net operating working capital (spare parts inventory) of $2,000. The truck will have no effect on revenues, but it 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 percent.

a. What is the net investment in the truck? (That is, what is the Year 0 net cash flow?)

b.. What is the operating cash flow in Year 1?

c. What is the total terminal (non-operating) cash flow at the end of Year 3?

d. The truck's cost of capital is 10 percent. What is its NPV?

Reference no: EM131302837

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