Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

(Related to Checkpoint 12.2) (Replacement project cash flows) Madrano's Wholesale Fruit Company located in McAllen, Texas is considering the purchase of a new fleet

image text in transcribed

(Related to Checkpoint 12.2) (Replacement project cash flows) Madrano's Wholesale Fruit Company located in McAllen, Texas is considering the purchase of a new fleet of tractors to be used in the delivery of fruits and vegetables grown in the Rio Grande Valley of Texas. If it goes through with the purchase, it will spend $440,000 on eight rigs. The new trucks will be kept for 5 years, during which time they will be depreciated toward a $41,000 salvage value using straight-line depreciation. The rigs are expected to have a market value in 5 years equal to their salvage value. The new tractors will be used to replace the company's older fleet of eight trucks which are fully depreciated but can be sold for an estimated $18,000 (because the tractors have a current book value of zero, the selling price is fully taxable at the firm's 26 percent tax rate). The existing tractor fleet is expected to be useable for 5 more years after which time they will have no salvage value. The existing fleet of tractors uses $205,000 per year in diesel fuel, whereas the new, more efficient fleet will use only $170,000. In addition, the new fleet will be covered under warranty, so the maintenance costs per year are expected to be only $11,000 compared to $36,000 for the existing fleet. a. What are the differential operating cash flow savings per year during years 1 through 5 for the new fleet? b. What is the initial cash outlay required to replace the existing fleet with the newer tractors? c. What does the timeline for the replacement project cash flows for years 0 through 5 look like? d. If Madrano requires a discount rate of 11 percent for new investments should the feet be replaced? a. The differential operating cash flow savings per year during years 1 through 4 for the new fleet are S (Round to the nearest dollar.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting

Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac

26th edition

128574361X, 978-1305446052, 1305446054, 978-1285743615

More Books

Students also viewed these Accounting questions

Question

For expert testimony, who should the client normally be?

Answered: 1 week ago

Question

Explain how successful companies implement controls.

Answered: 1 week ago

Question

Describe control as a managerial function.

Answered: 1 week ago

Question

Explain the total quality management process.

Answered: 1 week ago