11-3: Your company wants to replace the fleet of light-duty trucks for the truck leasing division, which began with a single purchase four years ago at a cost of $400,000. The fleet can be sold today for $130,000 and will be depreciated using MACRS, per Table 4.2. The new fleet will be purchased for $600,000, ready to go. The tax rate is 34%. Assume no change to net working capital for the replacement.

(A) Determine the book value of the current fleet.

(B) Determine the after-tax receipts from the sale of the existing fleet.

(C) Determine the replacement project's initial investment.

Hint for 11-3: Calculating initial investment Deriving the initial investment is described in pp. 408-411. Book value is described on page 409. After-tax proceeds: Recapture of depreciation = Sales price of old equipment minus book value of the old. Tax on the recapture of depreciation = Tax rate times the recapture amount. After-tax proceeds = Sales price of the old minus taxes on the recapture. Initial investment: Initial investment = Cost of new minus price of old plus tax on recapture of depreciation.