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.)

Year	0		1		2		3		4		5		6
FCF	$		$		$		$		$		$		$

Answer 1

Year	0	1	2	3	4	5
Initial Cashflow = $29,850 x 5	$149,250.00
ATCF = $0 + (($3100 x 5 – $0) × (1 – 34%)	-$10,230.00
Before tax Cash Savings		$3,800.00	$3,800.00	$3,800.00	$3,800.00	$3,800.00
Less: Depreciation (MACRS 5 years)		$29,850.00	$47,760.00	$28,656.00	$17,193.60	$17,193.60
EBIT		-$26,050.00	-$43,960.00	-$24,856.00	-$13,393.60	-$13,393.60
Less: Tax @ 34%		-$8,857.00	-$14,946.40	-$8,451.04	-$4,553.82	-$4,553.82
Net income		-$17,193.00	-$29,013.60	-$16,404.96	-$8,839.78	-$8,839.78
Add: Depreciation		$29,850.00	$47,760.00	$28,656.00	$17,193.60	$17,193.60
FCF	-$10,230.00	$12,657.00	$18,746.40	$12,251.04	$8,353.82	$8,353.82
Initial Cashflow = $29,850 x 5	$149,250.00
ATCF = Book value + (Market value – Book value) × (1 – TC)
ATCF = $0 + (($3100 x 5 – $0) × (1 – 34%)	-$10,230.00
Initial Investment	$139,020.00