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I don't understand how this would be completed. Please explain in detail. Mary's Auto Care is considering the purchase of a new tow truck. The
I don't understand how this would be completed. Please explain in detail.
Mary's Auto Care is considering the purchase of a new tow truck. The garage doesn't currently have a tow truck, and the $59.950 price tag for a new truck would represent a major expenditure. Mary Smith, owner of the garage, has compiled the following estimates in trying to determine whether the tow truck should be purchased. Mary's good friend, James Johnson, stopped by. He is trying to comvince Mary that the tow truck will have other benefits that Mary hasn't even considered. First, he says, cars that need towing need to be fixed. Thus, when Mary 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 Jane the cost of plowing her parking lot. (James will give her a used plow blade for free if Mary will plow James's driveway.) Third, he notes that the truck will generate goodwill; people who are rescued by Mary's 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 "Mary's Auto Care" on its doors, hood, and back tailgate-a form of free advertising wherever the tow truck goes. James 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 James. (If the net present value is negative, use either a negative sign preceding the number eg. -45 or parentheses eg. (45). Round answer to 0 decimal places, eg. 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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