B) Discuss the practical limitations of the Replacement Analysis you have undertaken in Part A.

Venta Co has decided to accept an investment project and is now considering financing it with a lease. The asset used for the investment project could be leased over four years at a rental of 36,000 pa, payable in advance for each year. Tax is payable at 30%, one year in arrears. The post-tax cost of borrowing 10%. C) Calculate the Net Present Value of the lease.

A decision by Venta Co has to be made on the replacement policy for its delivery van. The delivery van cost 12,000 and the following additional information applies: Assets sold at End of year 1 Trade-In Allowance 9,000 7,500 7,500 Asset kept for 1 year 2 years 3 years Maintenance cost at end of year 0 1,500 in 1st year 2,700 in 2nd year Note that the Van is only maintained at the end of the year if it is to be kept for a further year. That is, there are no maintenance costs in the year of replacement. Venta Co has a cost of capital of 15% pa. Ignore Taxation and Inflation Required (A) Using appropriate calculations determine the Optimal Replacement Policy