Your 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.)

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

Solution

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