Your company is considering the replacement of an old

Reference no: EM13622047

Your company is considering the replacement of an old delivery van with a new one that is more efficient. The old van cost $40,000 when it was 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 today for $7000. The new van has an invoice price of $80,000 and it will cost $6000 to modify the van to carry the company's products. Cost savings from the use of the van are exprected to be $28,000 per year for 5 years at which time the van will be sold for its estimated salvage value of $18,000. The new van will be depreciated using the simplified straight line method ovre its five year useful life. The company's tax rate is 35%. Working capital is exprected to increase by $5000 at the inception of the project, but this amount will be recaptured at the end of year five. What is the initial outlay required to fund this replacement project?

Reference no: EM13622047

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