Complete the requirements for P12-28.

Do the Total Cost Approach first then, do an Incremental Cost Approach analysis below your Total Cost Approach.

PROBLEM 1228 Net Present Value Analysis LO122 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: 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 16% discount rate. 1. What is the net present value of the "keep the old truck" alternative? Round to the nearest whole dollar. 2. What is the net present value of the "purchase the new truck" alternative? Round to the nearest whole dollar. 3. Should Bilboa Freightlines keep the old truck or purchase the new one? \begin{tabular}{|l|l|l|l|} \hline \multicolumn{3}{|c|}{ Bilboa Freightlines, S.A. } \\ \hline \multicolumn{3}{|c|}{ Incremental Cost Approach } \\ \hline \multicolumn{1}{|c|}{ Net Present Value Calculation } \\ \hline \multicolumn{1}{|c|}{ Item } & Year(s) & Amount of Cash Flows & PV \\ \hline & & \\ \hline Incremental investment - in favor of old truck & & \\ \hline Additional annual cash operating costs Lost salvage value in five years Lost salvage value for old truck now & & \\ \hline \end{tabular}