You have been asked by the president of the Farr Construction Company to evaluate the proposed acquisition of a new eart
Posted: Fri Jul 01, 2022 7:46 am
You have been asked by the president of the Farr ConstructionCompany to evaluate the proposed acquisition of a new earth mover.The mover’s basic price is $220,000, and it would cost another$30,000 to modify it for special use. Assume that the mover fallsinto the MACRS 5-year class, it would be sold after 4 years for$60,000, and it would require an increase in net operating workingcapital (spare parts inventory) of $10,000. The earth mover wouldhave no effect on revenues, but it is expected to save the firm$52,000 per year in before-tax operating costs, mainly labor. Thefirm’s marginal federal-plus-state tax rate is 25 percent and theproject’s cost of capital is 10 percent. What is the NPV andIRR?