Your company is contemplating replacing their current fleet of delivery vehicles

Question

Your company is contemplating replacing their current fleet of delivery vehicles with Nissan NV vans. You will be replacing 5 fully-depreciated vans, which you think you can sell for $3,800 apiece and which you could probably use for another 2 years if you chose not to replace them. The NV vans will cost $37,000 each in the configuration you want them, and can be depreciated using MACRS over a 5-year life. Expected yearly before-tax cash savings due to acquiring the new vans amounts to about $4,500 each. If your cost of capital is 12 percent and your firm faces a 35 percent tax rate, what will the cash flows for this project be? (Round your answers to the nearest dollar amount.)

FCF= Year 0 $-172,650.00

FCF= Year 1 $

FCF= Year 2 $

FCF= Year 3 $

FCF= Year 4 $

FCF= Year 5 $

FCF= Year 6 $

Explanation / Answer

Year Initial Cost Yearly After-tax cash savings (4500*5*.65) PV factor @12 % PV of cash savings PV of Dep Tax Shield Net cash flow Year 0 -1,72,650.00 -172650 Year 1 14,625.00 0.892857 13,058.04 11,562.50 24,620.54 Year 2 14,625.00 0.797194 11,658.96 16,517.86 28,176.82 Year 3 14,625.00 0.71178 10,409.79     8,756.68 19,166.46 Year 4 14,625.00 0.635518     9,294.45     4,740.46 14,034.91 Year 5 14,625.00 0.567427     8,298.62     4,232.55 12,531.17 Year 6 14,625.00 0.506631     7,409.48     1,889.53     9,299.01 Workings Cost MACRS Depreciation Rate Depreciation Expense Tax shield 35 % DF@ 12% PV of Dep Tax Shield 185000 20% 37,000.00 12,950.00 0.892857 11,562.50 185000 32% 59,200.00 20,720.00 0.797194 16,517.86 185000 19% 35,150.00 12,302.50 0.71178     8,756.68 185000 11.52% 21,312.00     7,459.20 0.635518     4,740.46 185000 11.52% 21,312.00     7,459.20 0.567427     4,232.55 185000 5.76% 10,656.00     3,729.60 0.506631     1,889.53

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