Coronado Auto Care is considering the purchase of a new tow truck. The garage currently has no tow truck, and the $59.960 price tag for a new truck would be a major expenditure for it. Jennifer Miller, owner of the garage, has compiled the following estimates in trying to determine whether she should purchase the tow truck Initial cost Estimated useful life Net annual cash flows from towing Overhaul costs (end of year 4) Salvage value Jennifer's good friend, David Wilson, stopped by He is trying to convince Jennifer that the tow truck will have other benefits that Jennifer has not even considered. First, he says, cars that need towing need to be fixed. Thus, when Jennifer tows them to her facility. her repair revenues will increase. Second, he notes that the tow truck could have a plow mounted on it, thus saving Jennifer the cost of plowing her parking lot. (David will give her a used plow blade for free if Jennifer will plow David's driveway.) Third, he notes that the truck will generate goodwill, that is, people who are rescued by Jennifer and her tow truck will feel grateful and might be more inclined to use her service station in the future or buy gas there. Fourth, the tow truck will have "Coronado Auto Care" on its doors. hood, and back tailgate-a form of free advertising wherever the tow truck goes David estimates that, at a minimum, these benefits would be worth the following Click here to view the factor table $59.960 Additional annual net cash flows from repair work Annual savings from plowing Additional annual net cash flows from customer goodwill Additional annual net cash flows resulting from free advertising The company's cost of capital is 9%. (a) 8 years $8,050 $4,980 $14.990 Net present value $ $2,990 Should Jennifer purchase the tow truck? 490 960 Calculate the net present value, ignoring the additional benefits described by David. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided, eg 1.25124 and final answer to 0 decimal places, eg. 5,275.) 500

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