Your company is considering the replacement of n old delivery van with a new one

Question

Your company is considering the replacement of n old delivery van with a new one that is more efficient.  The old van cost $40,000 when it was purchased 5 years ago.  The old van is being depreciated using the simplified straight -line method over a useful life of 8 years.  The old van could be sold today for $7000.  The new van has an invoice price of $80,000 and it will cost $6000 to modify the van to carry the company's products.  Cost savings from the use of the new van are expected to be $28,000 per year for 5 years, at which time the van will be sold for its estimated salvage value of $18,000.  The new van will be depreciated by $5000 at the inception of the project but this amount will be recaptured at the end of year five.  What is the terminal cash flow?

Explanation / Answer

Ans) $ 16,700

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