Question
Current Attempt in Progress Natasha's Auto Care is considering the purchase of a new tow truck. The garage doesn't currently have a tow truck, and
Current Attempt in Progress Natasha's Auto Care is considering the purchase of a new tow truck. The garage doesn't currently have a tow truck, and the $60,020 price tag for a new truck would represent a major expenditure. Natasha Austen, owner of the garage, has compiled the following estimates in trying to determine whether the tow truck should be purchased. Initial cost Estimated useful life Net annual cash flows from towing Overhaul costs (end of year 4) Salvage value $60,020 8 years $7,960 $5,980 $12,000 Natasha's good friend, Rick Ryan, stopped by. He is trying to convince Natasha that the tow truck will have other benefits that Natasha hasn't even considered. Rick says cars that need towing need to be
Current Attempt in Progress Natasha's Auto Care is considering the purchase of a new tow truck. The garage doesn't currently have a tow truck, and the $60,020 price tag for a new truck would represent a major expenditure. Natasha Austen, owner of the garage, has compiled the following estimates in trying to determine whether the tow truck should be purchased. Natasha's good friend, Rick Ryan, stopped by. He is trying to convince Natasha that the tow truck will have other benefits that Natasha hasn't even considered. - Rick says cars that need towing need to be fixed. Thus, when Natasha tows them to her facility, her repair revenues will increase. - Rick notes that the tow truck could have a plow mounted on it, thus saving Natasha the cost of plowing her parking lot. (Rick will give her a used plow blade for free if Natasha will plow Rick's driveway.) - Rick points out that the truck will generate goodwill. People who are rescued by Natasha's tow truck will feel grateful and might be more inclined to use her service station in the future or buy gas there. - The tow truck will have "Natasha's Auto Care" on its doors, hood, and back tailgate-a form of free advertising wherever the tow truck goes. Rick estimates that, at a minimum, these benefits would be worth the following. The company's cost of capital is 9%. Click here to view PV table. (a) Calculate the net present value, ignoring the additional benefits described by Rick. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round 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 $ Should the tow truck be purchased? The tow truck be purchasedStep by Step Solution
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