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:

Purchase cost new

Remaining book value

Overhaul needed now

Annual cash operating costs

Salvage value-now

Salvage value-five years from now

Present

Truck

$ 23,000

$ 10,000

$

9,000

$ 11,500

$ 4,000

SNow

Truck

$ 28,000

8,000

$

4,000

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.

lick here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using tables.

equired:

What is the net present value of the "keep the old truck" alternative?

What is the net present value of the "purchase the new truck" alternative?

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