Question
Pharoah Manufacturers is considering investing in a new truck that will be used to deliver its custom-made furniture. David Shop, Controller of Pharoah Manufacturers, is
Pharoah Manufacturers is considering investing in a new truck that will be used to deliver its custom-made furniture. David Shop, Controller of Pharoah Manufacturers, is considering a truck which will cost $72000 and which has a useful life of 5 years. The new truck will save $8640 per year in operating costs which are realized at the end of each year. David believes if the new truck is purchased it could be sold for $58050 at the end of its useful life. Pharoahs required rate of return is 8%.
Type of cash flow Periods Interest rate Factor
PV of $1 5 8% 0.6806
FV of $1 5 8% 1.4693
PV ordinary annuity 5 8% 3.9927
FV ordinary annuity 5 8% 5.8666
PV annuity due 5 8% 4.3121
What is the new trucks net present value? (round to the nearest dollar)
$17248
$2006
$-8608
$-7018
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