Your company is contemplating replacing their current fleet of delivery vehicles
ID: 2771323 • Letter: Y
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 $3,200 apiece and which you could probably use for another 2 years if you chose not to replace them. The NV vans will cost $31,000 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 $3,900 each. If your cost of capital is 8 percent and your firm faces a 34 percent tax rate, what will the cash flows for this project be? (Round your answers to the nearest dollar amount.)
Year 0 1 2 3 4 5 6 FCF $ $ $ $ $ $ $Explanation / Answer
Time line 0 1 2 3 4 5 6 Cost of new vans =5*purchase price of each new van -155000 -Proceeds from sale of old vans =5*selling price of each old van 16000 + tax paid on sale of old vans =Proceeds from sale of old vans*tax rate -5440 =Initial Investment outlay -144440 Savings =Savings per van*number of vans 19500 19500 19500 19500 19500 19500 MACR depreciation rate 20% 32% 19.20% 11.52% 11.52% 5.76% -Depreciation =Purchase cost of 5 vans * MACR %age -31000 -49600 -29760 -17856 -17856 -8928 = -11500 -30100 -10260 1644 1644 10572 -taxes =(savings- depreciation)*(1-tax) -11500 -30100 -10260 1085.04 1085.04 6977.52 +Depreciation 31000 49600 29760 17856 17856 8928 =after tax perating cash flow 19500 19500 19500 18941.04 18941.04 15905.52 Total Cash flow for the period -144440 19500 19500 19500 18941.04 18941.04 15905.52
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