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 $4,800 apiece and which you could probably use for another 2 years if you chose not to replace them. The NV vans will cost $47,000 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 $5,500 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.)

Year	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6
FCF	-219400

Answer 1

Capital Outlay = [(sale value of old vehicles - Book Value of old vehicles) * (1-Tax Rate)] - Purchase of new vehicles
= [(4800*5 - 0*5) * (1-35%)] - (47000*5)
= 15600 - 23500
Capital Outlay = $(219,400)