10. value: 10.00 points Your company is contemplating replacing their current fl

Question

10. value: 10.00 points 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 $4,400 apiece and which you could probably use for another 2 years if you chose not to replace them. The NV vans will cost $43,000 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 about $5,100 each. If your cost of capital is 12 percent and your firm faces a 35 percent tax rate, what will the cash flows for this project be? (Round your answers to the nearest dollar amount.) Year FCF S

Explanation / Answer

Calculation of cash flows from the project Year 0 1 2 3 4 5 Cost of NV vans -$215,000 Sale value of Old delivery vans $22,000 Tax on sale value @ 35% -$7,700 Tax saving on depreciation $15,050 $24,080 $14,448 $8,669 $8,669 Cash savings due to new vans $25,500 $25,500 $25,500 $25,500 $25,500 Tax on Cash savings @ 35% -$8,925 -$8,925 -$8,925 -$8,925 -$8,925 Net Cash flows for the project -$200,700 $31,625 $40,655 $31,023 $25,244 $25,244 Working Calculation of depreciation of NV vans using 5 Year MACRS and Tax saving due to depreciation Year Cost of NV vans Depreciation rate Depreciation Tax saving @ 35% 1 $215,000 20% $43,000 $15,050 2 $215,000 32% $68,800 $24,080 3 $215,000 19.20% $41,280 $14,448 4 $215,000 11.52% $24,768 $8,669 5 $215,000 11.52% $24,768 $8,669

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