Question

In: Finance

Your company is contemplating replacing their current fleet of delivery vehicles with Nissan NV vans. You...

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

Solutions

Expert Solution

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)



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