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Problem 1 2 - 2 8 ( Algo ) Net Present Value Analysis [ LO 1 2 - 2 ] Bilboa Freightlines, S . A

Problem 12-28(Algo) Net Present Value Analysis [LO12-2]
Bilboa Freightlines, S.A., of Panama, has a small truck that it uses for intracity deliveries. The truck is worn out and must be either overhauled or replaced with a new truck. The company has assembled the following information:
Present Truck New Truck
Purchase cost new $ 38,000 $ 48,000
Remaining book value $ 28,0000
Overhaul needed now $ 27,0000
Annual cash operating costs $ 20,000 $ 18,500
Salvage value-now $ 10,0000
Salvage value-five years from now $ 14,000 $ 12,000
If the company keeps and overhauls its present delivery truck, then the truck will be usable for five more years. If a new truck is purchased, it will be used for five years, after which it will be traded in on another truck. The new truck would be diesel-operated, resulting in a substantial reduction in annual operating costs, as shown above.
The company computes depreciation on a straight-line basis. All investment projects are evaluated using a 7% discount rate.
Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. What is the net present value of the keep the old truck alternative?

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