A waste removal company operates its trucks on different inter-city routes. The management is considering upgrading its fleet of 25 standard trucks (purchased at 8 million rand) which has a book value of three million rand. It expects to sell the existing fleet for four million rand and purchase new trucks at a cost of twelve million rand. The existing revenue of the fleet is four million rand per annum which is expected to rise by 25% per annum if the new trucks are introduced. The existing operating cost of the fleet is two million rand which is expected to drop by 10% after the upgrade.

Determine, using NPV and IRR, if replacement is a good idea if the companys weighted average cost of capital is 10% and the analysis period is 8 years. The company pays taxes at the rate of 33% and it charges depreciation on straight line basis.