What are differential operating cash flow savings per year

Reference no: EM132071011

Question: McAllen, Texas is considering the purchase of a new fleet of tractors to be used in the delivery of fruits and vegetables grown in the Rio Grande Valley of Texas. If it goes through with the purchase, it will spend $320,000 on eight rigs. The new trucks will be kept for 5 years, during which time they will be depreciated toward a $39,000 salvage value using straight-line depreciation. The rigs are expected to have a market value in 5 years equal to their salvage value. The new tractors will be used to replace the company's older fleet of eight trucks which are fully depreciated but can be sold for an estimated $17,000 (because the tractors have a current book value of zero, the selling price is fully taxable at the firm's 29 percent tax rate). The existing tractor fleet is expected to be useable for 5 more years after which time they will have no salvage value. The existing fleet of tractors uses $205,000 per year in diesel? fuel, whereas the new, more efficient fleet will use only $120,000. In addition, the new fleet will be covered under warranty, so the maintenance costs per year are expected to be only $15,000 compared to $32,000 for the existing fleet.

a. What are the differential operating cash flow savings per year during years 1 through 5 for the new fleet?

b. What is the initial cash outlay required to replace the existing fleet with the newer tractors?

c. What does the timeline for the replacement project cash flows for years 0 through 5 look like?

d. If Madrano requires a discount rate of 8 percent for new investments, should the fleet be replaced?

Reference no: EM132071011

Questions Cloud

Examples of substantive law : Which of the following are examples of substantive law? Place the following sources of law in order of priority (greater precedence to lesser precedence):

What are the calculations involved with pv and fv : A future value equals a present value plus the interest that can be earned by having ownership of the money; it is the amount that the present value will grow.

Difference as positive value if the loan is better : Enter this difference as a POSITIVE value if the LOAN is better or a NEGATIVE value if the LEASE is better.

Discuss how others may view them or treat them and why : What are their thoughts and behaviors? Discuss why they may have these thoughts and behaviors. Discuss how others may view them or treat them and why.

What are differential operating cash flow savings per year : McAllen, Texas is considering the purchase of a new fleet of tractors to be used in the delivery of fruits and vegetables grown in the Rio Grande Valley.

Which aspects of aging do you view positively : Describe your personal beliefs about aging with respect to physical, cognitive, and psychosocial domains.

What can you tell us about their performance trend : Why do you think the company performed this way compared to previous period? What can you tell us about their performance trend?

Examining research on family systems theory : Describe the diversity of these families in terms of their parenting roles, cultural beliefs, and involvement in their child's education.

How much is the investment product worth today : A relative, who just turned 60, is looking at purchasing an investment product which promises to pay $40,000 next year (on his 61st birthday).

User Account

All Pages