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 $3,100 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.)

Answer 1

Year	0	1	2	3	4	5
Sale of Old vehicles=5*3100*(1-34%)	10230
New Van Costs	-149250
Before tax cost savings		3800	3800	3800	3800	3800
Macrs Rate		20%	32%	19.20%	11.52%	11.52%
Depreciation		29850.0	47760.0	28656.0	17193.6	17193.6
EBIT =Before Tax Cost Savinfgs -Depreciation		-26050.0	-43960.0	-24856.0	-13393.6	-13393.6
Tax =EBIT *Tax Rate		-8857.00	-14946.40	-8451.04	-4553.82	-4553.82
Net income = EBIT -Taxes		-17193.00	-29013.60	-16404.96	-8839.78	-8839.78
Depreciation		29850.0	47760.0	28656.0	17193.6	17193.6
Free Cash flow	-139020	12657	18746	12251	8354	8354

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