Current Attempt in Progress Cullumber Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company's current truck (not the least of which is that it runs). The new truck would cost $57,000. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $7,500. At the end of 8 years, the company will sell the truck for an estimated $28,100. Traditionally the company has used a rule of thumb that a proposal should not be accepted unless it has a payback period that is less than 50% of the asset's estimated useful life. Larry Newton, a new manager, has suggested that the company should not rely solely on the payback approach, but should also employ the net present value method when evaluating new projects. The company's cost of capital is 8%. Click here to view PV table (a) Compute the cash payback period and net present value of the proposed investment. (If the net present value is negative, use either a negative sign preceding the number eg - 45 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125. Round answer for Payback period to 1 decimal place, e.g. 10.5. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Cash payback period 7.6 years Net present value (b) Does the project meet the company's cash payback criteria? Does it meet the net present value criteria for acceptance? Current Attempt in Progress Wildhorse Inc. manufactures snowsuits. Wildhorse is considering purchasing a new sewing machine at a cost of $2.45 million. Its existing machine was purchased 5 years ago at a price of $1.8 million; 6 months ago, Wildhorse spent $55,000 to keep it operational. The existing sewing machine can be sold today for $245,090. The new sewing machine would require a one-time $85,000 training cost. Operating costs would decrease by the following amounts for years 1 to 7: Year 1 $389,800 2 399.800 3 410,200 4 425,400 5 432,400 6 435,000 7 436,000 The new sewing machine would be depreciated according to the declining-balance method at a rate of 20%. The salvage value is expected to be $380,800. This new equipment would require maintenance costs of $99,000 at the end of the fifth year. The cost of capital is 9%. Click here to view PV table. Calculate the net present value. (If net present value is negative then enter with negative sign preceding the number e.g. -45 or parentheses eg. (45). Round present value answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value $ Based on the net present value, should Wildhorse purchase the new machine to replace the existing machine
