16 Bilboa Freightlines, S.A. of Panama has a small truck that it uses for local deliveries. The truck is in bad repair and must be either overhauled or replaced with a new truck. The company has assembled the following information (Panama uses the U.S. dollar as its currency): 12 points Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs 02:40:32 Salvage value now Salvage value eight years from now Present Truck New Truck $ 46,000 $ 64,000 31,000 13,000 17,500 13,000 18,000 4,400 7,400 If the company keeps and overhauls its present delivery truck, then the truck will be usable for eight more years. If a new truck is purchased, it will be used for eight years, after which it will be traded in on another truck. The new truck would be diesel-fuelled, resulting in a substantial reduction in annual operating costs, as shown above. The company computes depreciation on a straight-line basis. All investment projects are evaluated using a 16% discount rate. Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. Required: 1-a. Determine the present value of net cash flows using the total-cost approach. (Negative amounts should be indicated with a minus sign. Round discount factor(s) to 3 decimal place.) Purchase the new truck Keep the old truck Present Value of Net Cash Flows 1-b. Should Bilboa Freightlines keep the old truck or purchase the new one? Purchase the new truck O keep the old truck 2. Using the incremental-cost approach, determine the net present value in favor of (or against) purchasing the new truck? (Negative amounts should be indicated with a minus sign. Round discount factor(s) to 3 decimal place.) Net present value 15 points 02:40:50 Joe Swanson has an opportunity to acquire a franchise from The Yogurt Place, Inc. to dispense frozen yogurt products under the name The Yogurt Place. Swanson has assembled the following information relating to the franchise: a. A suitable location in a large shopping mall can be rented for $4,920 per month. b. Remodelling and necessary equipment would cost $373,500. The equipment would have a 15-year life and an $13,500 salvage value. Straight-line depreciation would be used. c. On the basis of similar outlets elsewhere, Swanson estimated that sales would total $458,000 per year. Ingredients would cost 20% of sales. d. Operating costs would include $142,000 per year for salaries, $4,500 per year for insurance, and $34,500 per year for utilities. In addition, Swanson would have to pay a commission to The Yogurt Place of 12.5% of sales. Required: 1. Prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet. JOE SWANSON Income Statement Deduct: Operating expenses: Total operating expenses 2-a. Compute the simple rate of return promised by the outlet. (Round your answer to 2 decimal places. (i.e., 0.1234 should be considered as 12.34%).) Simple rate of return % 2-b. If Swanson requires a simple rate of return of at least 9.5%, should he acquire the franchise? Yes ONC