Homework SourseYour company is contemplating replacing their current fleet
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.)
Solution
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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 |
