Question: A new municipal refuse collection vehicle can be purchased for $84,000. Its expected useful life is 6 years, at which time the market value and book value will be zero. Before-tax cash flow (BTCF) will be +$18,000 per year over the 6-year life of the vehicle.
a. Use straight-line depreciation, an effective income tax rate of 40% and an after-tax MARR of 12% to determine the present worth of the investment.
b. What is the after-tax internal rate of return?
c. Is this vehicle a sound investment? Explain your answer.