Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

(not the least of which is that it runs). The new truck would cost $55,250, Because of the increased capacity, reduced maintenance costs, and increased

image text in transcribed
(not the least of which is that it runs). The new truck would cost $55,250, Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $8,500. At the end of 8 years, the company will sell the truck for an estimated $27,000. Traditionally the compary 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 asset's 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 company's cost of capital is 8%. Click here to view the factor table. (a) Compute the cash payback period and net present value of the proposed investment. (If the net present value is negotive, use either a negative sign preceding the number es -45 or parentheses 8 (45). Round answer for present value to 0 decimal places, es. 125. Round answer for Payback period to 1 decimal place, es. 10.5. For calculation purposes, use 5 decimal places as displayed in the foctor table provided.) Cash paybackperiod Net present value $ (b) Does the project meet the company's cash payback criteria? Does it meet the net present value criteria for acceptance? (not the least of which is that it runs). The new truck would cost $55,250, Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $8,500. At the end of 8 years, the company will sell the truck for an estimated $27,000. Traditionally the compary 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 asset's 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 company's cost of capital is 8%. Click here to view the factor table. (a) Compute the cash payback period and net present value of the proposed investment. (If the net present value is negotive, use either a negative sign preceding the number es -45 or parentheses 8 (45). Round answer for present value to 0 decimal places, es. 125. Round answer for Payback period to 1 decimal place, es. 10.5. For calculation purposes, use 5 decimal places as displayed in the foctor table provided.) Cash paybackperiod Net present value $ (b) Does the project meet the company's cash payback criteria? Does it meet the net present value criteria for acceptance

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

Financial Accounting

Authors: Karen Bird, Gene Imhoff

5th Edition

0984200568, 978-0984200566

More Books

Students also viewed these Accounting questions

Question

=+beliefs about the brand, product, or service?

Answered: 1 week ago

Question

=+4. Did your message properly reflect the brand's image?

Answered: 1 week ago