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.