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 $3,100 apiece and which you could probably use for another 2 years if you chose not to replace them. The NV vans will cost $29,850 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 $3,800. 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.)

Explanation / Answer

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Year 0 1 2 3 4 5 Sale of Old vehicles=5*3100*(1-34%) 10230 New Van Costs -149250 Before tax cost savings 3800 3800 3800 3800 3800 Macrs Rate 20% 32% 19.20% 11.52% 11.52% Depreciation 29850.0 47760.0 28656.0 17193.6 17193.6 EBIT =Before Tax Cost Savinfgs -Depreciation -26050.0 -43960.0 -24856.0 -13393.6 -13393.6 Tax =EBIT *Tax Rate -8857.00 -14946.40 -8451.04 -4553.82 -4553.82 Net income = EBIT -Taxes -17193.00 -29013.60 -16404.96 -8839.78 -8839.78 Depreciation 29850.0 47760.0 28656.0 17193.6 17193.6 Free Cash flow -139020 12657 18746 12251 8354 8354

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