Bilboa Freightlines, S.A., of Panama, has a small truck that it uses for intracity deliveries. The truck is worn out and must be either overhauled or replaced with a new truck. The company has assembled the following information:

	Present Truck			New Truck
Purchase cost new	$	36,000		$	48,000
Remaining book value	$	23,000			-
Overhaul needed now	$	22,000			-
Annual cash operating costs	$	17,500		$	16,000
Salvage value-now	$	12,000			-
Salvage value-five years from now	$	15,000		$	6,000

If the company keeps and overhauls its present delivery truck, then the truck will be usable for five more years. If a new truck is purchased, it will be used for five years, after which it will be traded in on another truck. The new truck would be diesel-operated, 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 9% discount rate.

Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables.

Required:

1-a.	Use the total-cost approach to net present value. (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.)

1-b.

Should Bilboa Freightlines keep the old truck or purchase the new one?

	Purchase the new truck
	Keep the old truck

Bilboa Freightlines, S.A., of Panama, has a small truck that it uses for intracity deliveries. The truck is worn out and must be either overhauled or replaced with a new truck. The company has assembled the following New Truck Present Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Salvage value-now Salvage value-five years from now $15,000 Truck $36,000 $48,000 $23,000 $22,000 $17,500 $16,000 $12,000 6,000 If the company keeps and overhauls its present delivery truck, then the truck will be usable for five more years. If a new truck is purchased, it will be used for five years, after which it will be traded in on anothen truck. The new truck would be diesel-operated, 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 9% discount rate. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor s) using tables. Required: 1-a. Use the total-cost approach to net present value. (Any cash outflows should be indicated by a minus sign. Round discount factor(s) to 3 decimal places.) Now Keep the old truck: Overhaul needed now Annual operating costs Salvage value (old) Total cash flows Discount factor 9% Present value Net present value Purchase the new truck Purchase new truck Salvage value (old) Annual operating costs Salvage value (new) Total cash flows Discount factor 9% Present value Net present value 1-b. Should Bilboa Freightlines keep the old truck or purchase the new one? Purchase the new truck O Keep the old truck