Problem 2: Miami Roadbuilding Company (MRC) is considering the purchase of a new steamroller. The steamroller...
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Problem 2: Miami Roadbuilding Company (MRC) is considering the purchase of a new steamroller. The steamroller costs $95,000, and an additional $5,000 is needed to paint it with the firm logo and install radio equipment (i.e., to get it ready for productive use). The equipment falls into the MACRS 3-year class, and is not expected to generate any additional revenue. However, it is expected to reduce cash operating costs by $35,000 per year. After its five year useful life, MRC expects to sell the steamroller for $40,000. An inventory investment of $4,000 is required during the useful life of the equipment. If MRC's cost of capital for the project is 10% and its marginal tax rate is 45%, what is the project's NPV? Problem 2: Miami Roadbuilding Company (MRC) is considering the purchase of a new steamroller. The steamroller costs $95,000, and an additional $5,000 is needed to paint it with the firm logo and install radio equipment (i.e., to get it ready for productive use). The equipment falls into the MACRS 3-year class, and is not expected to generate any additional revenue. However, it is expected to reduce cash operating costs by $35,000 per year. After its five year useful life, MRC expects to sell the steamroller for $40,000. An inventory investment of $4,000 is required during the useful life of the equipment. If MRC's cost of capital for the project is 10% and its marginal tax rate is 45%, what is the project's NPV?
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