Quikasaflash Ltd operates a suburban taxi-truck business. It is considering the replacement of an existing 2 ton van with a new 3 ton truck. Details are as follows:

2 ton van

Estimates

3 ton truck

Estimates

Remaining life

3 years

Estimated life

6 years

Salvage value:

Cost

$50K

Now

$6K

Salvage value after 6 years

$3.5K

After 3 years

$1K

Net cash flow

$16K p.a.

E (NCF)

$10K p.a.

The required rate of return is 10% pa. Advise management with an NPV analysis as to whether it is better to replace the existing van with the new truck now or in 3 years' time.