3) (15 points) Your town has 2 old trucks that it is considering replacing with

Question

3) (15 points) Your town has 2 old trucks that it is considering replacing with one new truck. The new truck is much more efficient than the old ones, and purchasing it will enable the town to fire one of the truck drivers, thus saving $15,000 annually in operating costs Additional facts: Each old truck has a book value of 53,000 and can be sold for $12,000. The new truck costs $50,000 and will be depreciated on a straight-line basis over 5 years. In year 5 the new truck will be sold for 525,000 The town's tax rate is 30%. The appropriate discount rate is 14%. Answer the following questions on an excel spreadsheet: 4 What is the cash flow from replacing the trucks in year 0/ 4 Compute the r ash flow from replacing the trucks in years 1.4. Compute the cash flow in year 5 (this Includes the planned sale of the new truck). What Is the formula In cell B21 What le the formula In cell B22!

Explanation / Answer

The cash flow from replacing the trucks in year 0:

cash inflow:

Aftex tax salvage value of old trucks= Market value- tax rate*( Marke value -book value)

=24000-0.3*(24,000-6,000)

=$18,600

Cash outflow: (50,000)

Total cash flow = (50,000)+18,600=(31,400)

b)15000*(1-.3)+10000= $20,500 every year [EBIT(1-tax rate)+Depreciaition]

c)cash inflow :

15000*(1-.3)+10000= $20,500

Aftex tax salvage value of new truck= Market value- tax rate*( Marke value -book value)

=25000-0.3*(25,000)= $17,500

total =20,500+17,500= $28,000

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