What is the initial outlay required to fund this project

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Reference no: EM13268241

You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck. Since you are not an expert on industrial vehicles, you hire a consulting firm to make recommendations. The consultant charged you $1,500 and recommended the purchase of a model CP8 truck. The trucks basic price is $40,000, and it will cost another $10,000 to modify it for special use by your firm. The truck will be depreciated using IRS guidelines that require depreciation expense equal to 33% of the initial depreciable value in year one, 45% of the initial depreciable value in year two, and 15% of the initial value in year three. The company expects to sell the new truck after three years for $20,000. Use of the truck will require an increase in the companys net working capital for $2,000, but this $2,000 may be recovered at the end of year three. The truck will have no effect on revenues, but it is expected to save the firm $25,000 per year in before-tax operating costs, mainly labor. The firm's marginal tax rate is 40%. What is the initial outlay required to fund this project?

a) $51,000 b) $52,000 c) $50,000 d) $53,500

Reference no: EM13268241

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