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Janes Auto Care is considering the purchase of a new tow truck. The garage doesnt currently have a tow truck, and the $60,000 price tag

Janes Auto Care is considering the purchase of a new tow truck. The garage doesnt currently have a tow truck, and the $60,000 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 $60,000
Estimated useful life 8 years
Net annual cash flows from towing $7,990
Overhaul costs (end of year 4) $5,990
Salvage value $12,000

Janes good friend, Rick Ryan, stopped by. He is trying to convince Jane that the tow truck will have other benefits that Jane hasnt 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 plowing 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 will generate goodwill; people who are rescued by Janes 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 Janes Auto Care on its doors, hood, and back tailgatea 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 $3,010
Annual savings from plowing 750
Additional annual net cash flows from customer goodwill 970
Additional annual net cash flows resulting from free advertising 740

The companys cost of capital is 9%.

*NEED PART B*

image text in transcribed

Kimmel, Accounting, oe Helel5 here to view P Your answer is correct. Calculate the net present value, ignoring the additional benefits described by Rick. (f the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round ansiver to 0 decimal places, e.g. 125. For calculatlon purposes, use 5 declmal places as disployed In the factor table provided.) Net present value Should the tow truck be purchased? The tow truck nculi narba purchased. Attempts: 1 of 5 used Calculate the net present value, incorporating the additional benefits suggested by Rick. (If the net present value is negative, use either a negative sign preceding the number eg -15 or parentheses eg (45), Round answer to 0 decimal places, e.g. 125, Foi calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present valua s Shauld the tow truck be purchased? The tow truck be purchased Attempts: of 5 used SAVE FOR LATER The parts of this question must be completed in order. This part be avallable when you complete the part above

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