Question
) Kunura Fleet Ltd operates a fleet of limousines. It is currently considering replacing them with a new model. A decision must be made to
) Kunura Fleet Ltd operates a fleet of limousines. It is currently considering replacing them with a new model. A decision must be made to replace the old limousines with new now or alternatively at the end of the physical life of the old limousines in 4 years. The required rate of return is 9%. The company plans to evaluate options based on the following information for each vehicle replaced:
Item | Old Limousines | New Limousines |
Net cash flows | $40,000 p.a. | $70,000 p.a. |
Cost | - | $300,000 |
Estimated Life | 4 years | 7 years |
Disposal Value: at present | $20,000 |
|
Disposal Value: in 7 years | - | $40,000 |
Required rate of return (real) | 9% p.a. | 9% p.a. |
Should Luxury Fleet replace the old limousines now or later?
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