Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Jane's Auto Care is considering the purchase of a new tow truck. The garage doesn't currently have a tow truck, and the $60,050 price tag

image text in transcribed
image text in transcribed
Jane's Auto Care is considering the purchase of a new tow truck. The garage doesn't currently have a tow truck, and the $60,050 price tag for a new truck would represent a major expenditure. Jane Austen, owner of the garage, has compiled the estimates shown below in trying to determine whether the tow truck should be purchased, Initial cost $60,050 Estimated useful life 8 years Net annual cash flows from towing $7.980 Overhaul costs (end of year 4) $5,990 Salvage value $12,010 Jane's good friend, Rick Ryan, stopped by. He is trying to convince Jane that the tow truck will have other benefits that Jane hasn even considered. First, he says.cars that need towing need to be fixed. Thus, when Jane 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 plong her parking lot (Rick will give her a used plow blade for free if Jane will plow Rick's driveway) Third, he notes that the truck generate goodwill: people who are rescued by Jane's tow truck will feel grateful and might be more inclined to use her service station in the future or buy gasthere. Fourth, the tow truck will have Jane'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. Additional annual net cash flows from repair work $2.990 Annual savings from plowing 760 Additional annual net cash flows from customer goodwill 1.000 Additional annual net cash flows resulting from free advertising 750 The company's cost of capital is 9% Calculate the net present value, ignoring the additional benefits described by Rick (or 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 o decimal places, e.g. 125.) Net present value Should the tow truck be purchased? The tow truck 1 be purchased LINK TO TEXT Calculate the ret present value, Incorporating the additional benefits suggested by Rick. (Er the net present value is negative, use either a negativo sign preceding the number eg 45 or parentheses e (48). Round answer for present value to o decimal places, eg. 125.) Net present value Should the tow truck be purchased? The tow truck be purchased. Suppose Rick has been overty optimistic in his assessment of the value of the additional benefits. At a minimum, how much would the additional benefits have to be worth in order for the project to be accepted? (Round answer to o decimal places, e.g. 125.) The present value of the intangible benefits Click if you would like to show Work for this question Open Show Work LINK TO TEXT LINK TO TEXT

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Bank Strategy, Governance And Ratings

Authors: P. Molyneux

3rd Edition

0230313345, 9780230313347

More Books

Students also viewed these Accounting questions

Question

How can microsegregation be removed?

Answered: 1 week ago

Question

Explain the factors that determine the degree of decentralisation

Answered: 1 week ago

Question

What Is acidity?

Answered: 1 week ago

Question

Explain the principles of delegation

Answered: 1 week ago

Question

State the importance of motivation

Answered: 1 week ago

Question

Discuss the various steps involved in the process of planning

Answered: 1 week ago

Question

1.4 Identify tools to help makeevidence-based HRM decisions.

Answered: 1 week ago