Lane Construction Ltd. is considering the acquisition of a new eighteen-wheeler. The truck's base price is

Question:

Lane Construction Ltd. is considering the acquisition of a new eighteen-wheeler.
• The truck's base price is $80,000, and it will cost another $20,000 to modify it for special use by the company.
• This truck falls into the MACRS five-year class. It will be sold after three years for $30,000.
• The truck purchase will have no effect on revenues, but it is expected to save the firm $45,000 per year in before-tax operating costs, mainly in leasing expenses.
• The firm's marginal tax rate (federal plus state) is 40%, and its is 15%.
(a) Is this project acceptable, based on the most likely estimates given in the problem?
(b) If the firm's is increased to 25%, what would be the required savings in leasing so that the project would remain profitable? MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...