A new municipal refuse collection vehicle can be purchased for P84,000. Its expected useful life is 6 years, at which time the Salvage Value (SV) and Book Value (BV) will be zero. Before-tax Cash Flow (BTCF) will be +P18,000 per year over the 6-year life of the vehicle.
a. Use straight-line (SL) depreciation, an effective income tax rate of 40% and an after-tax MARR of 12% to determine the present worth of the investment.
b. Is this vehicle a sound investment? Explain your answer.