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A business is planning to purchase a fleet of delivery vehicles for $600,000. The vehicles have an expected useful life of 6 years and no
A business is planning to purchase a fleet of delivery vehicles for $600,000. The vehicles have an expected useful life of 6 years and no salvage value. The vehicles will generate annual savings in operating costs of $120,000. The tax rate for the business is 32%. The present value factors for 6 years are as follows:
Discount Rate | Cumulative Factors |
10% | 4.355 |
12% | 4.111 |
14% | 3.889 |
16% | 3.685 |
18% | 3.498 |
Requirements:
- Calculate the NPV at each discount rate.
- Determine the IRR of the investment.
- Assess the impact of tax savings on the investment decision.
- Analyze the effect of different discount rates on the NPV and IRR.
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