Question

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 $3,900 aplece and which you could probably use for another 2 years if you chose not to replace them. The NV vans will cost $38,000 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 $4600 each. If your cost of capital is 10 percent and your firm faces a 40 percent tax rate, what will the cash flows for this project be? (Round your answers to the nearest dollar amount.) Year 2 5 6 FCF

Answer 1

Formula Bar B с D F G H 0 1 2 3 4 5 6 4600 4600 4600 4600 7600 4600 12160 -7560 4600 7296 -3000 1200 3024 4377.6 222.4 88.96 311.36 4377.6 4688.96 4377.6 222.4 88.96 311.36 4377.6 4688.96 -2696 1078.4 - 1617.6 7296 5678.4 2188.8 2411.2 964.48 3375.68 2188.8 5564.48 -4536 -1800 7600 12160 7624 5800 38000 2340 -35660 A 30 31 Year 32 Savings Before Tax for 1 Van 33 Less : Depreciation- see note 34 EBIT 35 Less: Tax @40% 36 EAT 37 Add: Depreciation 38 Operating Cash Flow 39 Cost of New Machine 40 Less: sale value of old machine (After tax) 41 (3900(1-0.4)=2340) 42 43 44 45 FOR 5 Vans FREE CASH FLOWS-FCF 46 PVF @10% 47 PV OF CASH FLOWS 48 49 50 Note 51 Year 52 Cost of 1 van 53 MACRS Rates 54 Depreciation 55 56 57 -178300 29000 1 0.9091 38120 0.8264 31502.368 28392 0.7513 21330.91 23444.8 23444.8 27822.4 0.683 0.6209 0.5644 16012.798 14556.876 15702.9626 -178300 26363.9 1 2 3 4 5 6 0 38000 20% 7600 32% 12160 19.20% 7296 11.52% 4377.6 11.52% 4377.6 5.76% 2188.8