Zara bus company is considering the replacement of one of its buses with a new one. It is estimated that the new bus will bring in extra revenues amounting to $12 000 000 per year as well as savings in the maintenance costs amounting to $1 300 000 per year. The new bus is expected to cost $19 000 000 plus shipping costs of $1 200 000. The bus is expected to operate for five years and to have a salvage value of $5 000 000. There will be an increase of $100 000 per year working capital. The old bus was bought 4 years ago and now has a market value of $30 000.
a) Calculate the initial investment.
b) Calculate the annual cash flows.
c) Calculate the terminal cash flow of the project.