Conway Construction Corporation would like to purchase a fleet of trucks at a cost of \($260,000.\) Additional equipment needed to maintain the fleet of trucks will be purchased at the end of year two for \($40,000.\) The trucks are expected to have a life of eight years, and a salvage value of \($20,000.\) Annual costs for maintenance, insurance, and other cash expenses will total \($42,000.\) Annual net cash receipts resulting from this purchase are predicted to be \($135,000.\) The company’s required rate of return is 14 percent. 

Required

a. Find the net present value of this investment using the format presented in Table 8.3. Round to the nearest dollar.

b. Should the company purchase the new fleet of trucks? Explain.

Table 8.3

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Alternative NPV Calculation for Jackson's Quality Copies (A) Cash Flow (B) Present Value Item Description In (Out) Factor (r=10%) (A) (B) Present Value Purchase price (today) $(50,000) 1.000* $(50,000) Annual maintenance costs (years 1-7) (1,000) 4.8684** Annual labor savings (years 1-7) 11,000 4.8684** Salvage value (end of year 7) 5,000 0.5132" Net present value (4,868) 53,552 2,566 $ 1,250 Same as NPV in Table 8.2 *Because this is not an annuity, use Table 1 in Appendix 8.1. ** Because this is an annuity, use Table 2 in Appendix 8.1. The number of years (n) equals seven since identical cash flows occur each year for seven years.