You have been asked by the president of your company to evaluate the

You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose 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 five-year class {MACRS rates as percentages: 20, 32,
19, 12, 11, 6}, and will be sold after two years for $40,000.  Use of the truck will require an increase in net 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%.
 The firm’s capital structure is 50% debt & 50% equity. They calculate their WACC to be
9.0% using the following inputs: before-tax cost of debt-10%, cost of equity-12%, expected market return-12%, risk-free rate-4%, beta-1.0.
a) What is the net investment in the truck project? (That is, what is the Year 0 net cash
flow?)
b) What is the operating cash flows in Year 1 & 2?
c) What is the NPV of this project?

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