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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:

  1. Calculate the NPV at each discount rate.
  2. Determine the IRR of the investment.
  3. Assess the impact of tax savings on the investment decision.
  4. Analyze the effect of different discount rates on the NPV and IRR.

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