Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 $ 38,000 $ 48,000 Remaining book value $ 28,000 - Overhaul needed now $ 27,000 - Annual cash operating costs $ 20,000 $ 18,500 Salvage value-now $ 10,000 - Salvage value-five years from now $ 14,000 $ 12,000 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 7% discount rate. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.

Required: 1. What is the net present value of the keep the old truck alternative?

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

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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Software Quality Assurance A Guide For Developers And Auditors

Authors: Howard T. Garst Smith

1st Edition

1574910493, 978-1574910490

More Books

Students also viewed these Accounting questions

Question

Develop clear policy statements.

Answered: 1 week ago

Question

Draft a business plan.

Answered: 1 week ago

Question

Describe the guidelines for appropriate use of the direct plan.

Answered: 1 week ago