Tongaat Trucking bought a delivery vehicle three years ago for R400,000 The annual wear and tear allowance for this class of asset is 20 per year As the business has expanded, this vehicle is increasingly inadequate and they are thinking to purchase a new, larger vehicle that will cost R650,000 The firm estimates that the new vehicle would be R6,000 per year cheaper to run but the insurance cost would increase by R4,000 per year and the larger firm would allow them to increase their income by R40,000 per year Tongaat Trucking expects to be able to sell the old vehicle now for R290,000 and that its salvage value at the end of its five year useful life will be R60,000 What would the NPV be of replacing the vehicle if the firms cost of capital is 15 and it pays 30 tax

Answer rating: 100% (QA)

The NPV of replacing the old vehicle would be R38000 WOR... View the full answer