Question
Linkin Corporation is considering purchasing a new delivery truck. The truck has many advantages over the companys current truck (not the least of which is
Linkin Corporation is considering purchasing a new delivery truck. The truck has many advantages over the companys current truck (not the least of which is that it runs). The new truck would cost $57,400. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $7,800. At the end of 8 years the company will sell the truck for an estimated $28,100. Traditionally the company has used a rule of thumb that a proposal should not be accepted unless it has a payback period that is less than 50% of the assets estimated useful life. Larry Newton, a new manager, has suggested that the company should not rely solely on the payback approach, but should also employ the net present value method when evaluating new projects. The companys cost of capital is 8%. What is the net present value and cash payback period?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started