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Hello I am hoping to get some help with the following question, thank you! Bilboa Freightlines, S.A. of Panama has a small truck that it
Hello I am hoping to get some help with the following question, thank you!
Bilboa Freightlines, S.A. of Panama has a small truck that it uses for local deliveries. The truck is in bad repair and must be either overhauled or replaced with a new truck. The company has assembled the following information (Panama uses the U.S. dollar as its currency) Present New Truck Truck Purchase cost new Remaining book value Overhaul needed novw Annual cash operating costs Salvage value now Salvage value eight years from now $41,000 $55,000 26,000 8,000 11,000 8,500 14,000 1,000 4,000 If the company keeps and overhauls its present delivery truck, then the truck will be usable for eight more years. If a new truck is purchased, it will be used for eight years, after which it will be traded in on another truck. The new truck would be diesel-fuelled, resulting in a substantial reduction in annualoperating costs, as shown above. The company computes depreciation on a straight-line basis. All investment projects are evaluated using a 16% discount rate. Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. Required 1-a. Determine the present value of net cash flows using the total-cost approach. (Negative amounts should be indicated with a minus sign. Round discount factor(s) to 3 decimal place.) sen ue Cash Flows Purchase the new truck Keep the old truck 1-b. Should Bilboa Freightlines keep the old truck or purchase the new one? O Purchase the new truck O Keep the old truck 2. Using the incremental-cost approach, determine the net present value in favor of (or against) purchasing the new truck? (Negative amounts should be indicated with a minus sign. Round discount factor(s) to 3 decimal place.) Net present valueStep by Step Solution
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