Maplewood Creations Is Considering the Purchase of a New Truck

Multiple Choice

Maplewood Creations is considering the purchase of a new truck to replace an old truck that has a book value of $2,500 and a market value of $800. The annual depreciation expense on the old truck was $500. The new truck, which will cost $29,000, will reduce operating costs $9,000 per year over it's 6 year economic life. The new truck has a 5-year MACRS life and an estimated salvage value at the end of 6 years of $2,000. If Maplewood has a 40 percent marginal tax rate and a cost of capital of 12 percent, what is the NPV of the new truck? Use the Depreciation schedule listed below:
(5-Year depreciation Schedule: 20%, 32%, 19%, 12%, 12%, 5%)

A) $1,517
B) $3,233
C) $29,037
D) $836