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your company is considering the replacement of an old delivery van

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Question

your company is considering the replacement of an old delivery van with a new one one that is more efficient. The old van cost $40000 when it purchased 5 years ago. The old van is being depreciated using the simplified straight- line method over a useful life of 8 years. The old van could be sold for $7000. The new van has an invoice price of $80000, it will cost $6000 to carry the company's product. Cost savings from the use of the new van are expected to be $28000 per for 5 years. At which the new van will be sold for its estimated salvage value of $18000. The new van will be depreciated using the straight-line method over its 5- useful life years. The company's tax rate is 35%. The working capital is expected to increase by $5000, at the inception of the project, but this amount will be recaptured a the end of year 5. What is the initial outlay required to fund this replacement project? What is the terminal cash flow?

 

Paper#21791 | Written in 18-Jul-2015

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