Problem:
Your Company is considering the replacement of an old delivery van with a new one that is more efficient. The old van cost $40,000 when it was purchased 5 years ago. The old van is being depreciated using the simplified straight line method over a useful life of 8 years. The old van could be sold today for $7000. The new van has an invoice price of $80,000 and it will cost $6000 to modify the van to carry the company's products. Cost savings from the use of the van are expected to be $28,000 per year for 5 years at which time the van will be sold for its estimated salvage value of $18,000. The new van will be depreciated using the simplified straight line method over its five year useful life. The company's tax rate is 35%. Working capital is expected to increase by $5000 at the inception of the project, but this amount will be recaptured at the end of year five.
Required:
Question: What is the initial outlay required to fund this replacement project?
A. $81,200
B. $78,600
C. $73580
D. $74,500
Note: Please provide reasons to support your answer.