(Related to Checkpoint12.2)(Replacement project cashflows)

[Related to Checkpoint 12.2) (Replacement project cash ows} Madrano's Wholesale Fruit Company located in talliwllillenI Texas is considering the purchase of a new eet of tractors to be used in the delivery offmits and vegetables grown in the Rio Grande Valley ofTexas. lfit goes through with the purchase, it will spend $420,000 on eight rigs. The new trucks will be kept for5 years, during which time they will be depreciated toward a $41,000 salvage value using straightline 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 com pany's older eet of eight trucks which are fully depreciated but can be sold for an estimated $24,000 {because the tractors have a current book value ofzero, the selling price is fully taxable at the rrn's 28 percent tax rate}. The existing tractor eet is expected to be useable for 5 more years after which time they will have no salvage value. The existing eet of tractors uses $190,000 per year in diesel fuel, whereas the new, more efcient eet will use only $110,000. In addition. the new eet will be covered under warranty, so the maintenance costs per year are expected to be only $14,000 compared to $31,000 for the existing eet. a. What are the differential operating cash ow savings per year during years 1 through 5 for the new eet? b. What is the initial cash outlay required to replace the existing eet with the newer tractors? c. What does the timeline for the replacement project cash ows for years 0 through 5 look like? d. If Madrano requires a discount rate of 12 percent for new investments, should the eet be replaced? a. The differential operating cash flew savings per year during 1years 1 through 4 for the newr eet are 5 91.064'. [Round to the nearest dc The terminal cash ew of the newt:r eet is 5 132.063. {Round to the nearest dollar.) h. The initial sash euttey required to replace the existing eet with the newer tractors is $ 40:2,?215'. {Ree nd to the nearest dollar.)