Proposed acquisition of a new earth mover

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Reference no: EM131000442

You have been asked by the CEO of the ENI Construction Company to evaluate the proposed acquisition of a new earth mover. The mover"s basic price is $50,000, and it would cost another $10,000 to modify it for special use in the newly awarded contract site. Assume that the mover falls into the MACRS 3-year class i.e, 33% 45% and 15% depreciation slabs apply in year 1, 2, and 3 respectively it would be sold after 3 years for $20,000, and it would require an increase in net working capital (spare parts inventory) of $2,000. The earth mover would 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.

Reference no: EM131000442

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