Lemington Enterprises is considering a project to replace its fleet of 10 vehicles. The company makes a
Question:
Lemington Enterprises is considering a project to replace its fleet of 10 vehicles. The company makes a fleet replacement decision every five years. Its current fleet of 10 vehicles was purchased five years ago at $50,000 each and can be sold for $10,000 each today. The new vehicles will cost $60,000 each and will bring cost savings of $100,000 per year. In five years, the new vehicles can be sold for $12,000 each. If the fleet is not replaced today, the current fleet will have no salvage value in five years’ time. The CCA rate on these vehicles is 30%, and the company’s marginal tax rate is 35%. What is the PV(CCATS) for this replacement project, assuming a required rate of return of 10%? Round your answer to the nearest dollar.
Finance Applications and Theory
ISBN: 978-0077861681
3rd edition
Authors: Marcia Cornett, Troy Adair