Question
In: Finance
Pirate Company produces planks. They are currently considering replacing their fleet of delivery trucks. Replacing the...
Pirate Company produces planks. They are currently considering replacing their fleet of delivery trucks. Replacing the old trucks will require an initial outlay of $300,000 but Pirate Company will save $200,000 per year in fuel costs over the 6 year life of the project. The trucks will be depreciated at a cost of $50,000 per year. If the tax rate is 40% and WACC is 8%, should Pirate Company replace their current fleet of delivery trucks? Use the NPV criteria to make your decision.
Solutions
Expert Solution
Solution :
Pirate Company should replace their current fleet of delivery trucks as the NPV of replacement is positive at $ 347,203.15
The NPV of replacement = $ 347,203.15
Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.
jeff jeffy answered 1 year agoRelated Solutions
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