Ganges Express, a package delivery company, operates a fleet of Volvo trucks at
ID: 2737867 • Letter: G
Question
Ganges Express, a package delivery company, operates a fleet of Volvo trucks at one terminal where the lease of 175,000 euros per year is expiring. They had planned to set up another lease with Volvo for next three years at a cost of 200,000 euros per year in operating expenses. This is the total cost for the entire fleet. A Scania sales rep just called to offer a discounted price of 700,000 euros for Ganges to purchase a new fleet (instead of leasing). If the new fleet is purchased, then Ganges expects to sell the Scania trucks at book value at the end of three years. They use straight-line depreciation over 5 years for new vehicles. Assume the tax rate is 30% and the discount rate for Ganges Express is 10%. Ignore inflation.
What are the projected Free Cash Flows immediately in thousands of Euros?
What are the projected Free Cash Flows for year 1 in thousands of Euros?
What are the projected Free Cash Flows for year 2 in thousands of Euros?
What are the projected Free Cash Flows for year 3 in thousands of Euros?
What is the highest discount rate under which Ganges Express would choose to purchase the Scania trucks?
What is the Payback Period for the purchase of Scania trucks?
Explanation / Answer
The projected Free Cash Flows immediately in thousands of Euros : 700
The projected Free Cash Flows for year 1 in thousands of Euros : 182
The projected Free Cash Flows for year 2 in thousands of Euros : 182
The projected Free Cash Flows for year 3 in thousands of Euros : 462
The highest discount rate under which Ganges Express would choose to purchase the Scania trucks : 7.41%
The Payback Period for the purchase of Scania trucks : 2.73 Years
Year Cost of New Trucks Saving in Lease rent Depreciation Saving after Depreciation Tax Saving after tax Sale of Trucks Cash Flow 0 -700000 -700000 1 200000 140000 60000 18000 42000 182000 2 200000 140000 60000 18000 42000 182000 3 200000 140000 60000 18000 42000 280000 462000Related Questions
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