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Problem 1 4 - 2 8 ( Algo ) Net Present Value Analysis [ LO 1 4 - 2 ] Bilboa Freightlines, S . A

Problem 14-28(Algo) Net Present Value Analysis [LO14-2]
Bilboa Freightlines, S.A., of Panama, uses a truck for intracity deliveries that has worn out and must be overhauled or replaced. The company assembled the following information:
Present Truck New Truck
Purchase cost (new) $ 37,000 $ 47,000
Remaining book value $ 27,000-
Overhaul needed now $ 26,000-
Annual cash operating costs $ 19,500 $ 18,000
Salvage value-now $ 10,000-
Salvage value-five years from now $ 13,000 $ 13,000
If the company overhauls its present delivery truck, then it will be usable for five more years. If a new truck is purchased, it will be used for five years and then traded in for another truck. The new truck would be diesel-operated, resulting in lower annual operating costs, as shown above.
The company computes depreciation on a straight-line basis and uses a 10% discount rate.
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.
Required:
What is the net present value of the keep the old truck alternative?
What is the net present value of the purchase the new truck alternative?
Should Bilboa Freightlines keep the old truck or purchase the new one?

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