Question: Lane Construction Ltd. is considering the acquisition of a new dump truck....
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Lane Construction Ltd. is considering the acquisition of a new dump truck. The truck's base price is $75,000, and it will cost another $15,000 to modify it for special use by the company. It will be sold after five years for $20,000. The truck purchase will have no effect on revenues, but it is expected to save the firm $35,000 per year in before tax operating costs mainly in leasing expenses. The firm's MARR is 15%. Tax rate is 40%. For depreciation, use MACRS table below. The truck operates on day shift only 2080 hours per year for the first year and 100 hours less each subsequent year. Compare against leasing which costs $15,000 annually. Make sure to develop income and cash flow tables MACRS: Under IRS guidelines (IRS, 2009), a circuit board testing machine would be classed as "high-technology equipment," which has a 5-year recovery period. Thus, the equipment could be depreci- ated according to this schedule: n 1 2 3 4 5 6 Depreciation Percent 20 32 19.2 11.52 11.52 5.76
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