Determine operating cash inflows due to the new fleet

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Reference no: EM131077873

Now I am considering purchasing a whole fleet of new golf carts. The total cost of the new fleet is $2.2 million (yes million!). I can sell my old 10 year old fleet (which I dished out 1 million for) even though it is fully depreciated (has zero book value) because a small course down the road is offering me $1.2 million. With the new carts, I expect my annual revenue to go up by an additional $1.6 million (vs. keeping the old carts) for each of the next 5 years. Maintenance expenses for these new carts will run me 50% of the additional revenue. The new carts will be depreciated using MACRS over a 5 year recovery period. My tax rate is 40% & my cost of capital is 11% [(There is no terminal cash flows for old & new carts ($0 at the end of year 6)]

1. Determine initial investment for the new fleet

2. Determine operating cash inflows due to the new fleet

3. Determine my payback period

4. Determine my NPV & IRR for the new fleet

5. Make a recommendation whether I should purchase or not

Reference no: EM131077873

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