Question 19 of 20 > - 75 View Policies Current Attempt in Progress Wildhorse's Auto Care is considering the purchase of a new tow truck. The garage doesn't currently have a tow truck, and the $59,950 price tag for a new truck would represent a major expenditure. Wildhorse Austen, owner of the garage, has compiled the following estimates in trying to determine whether the tow truck should be purchased. Initial cost $59,950 Estimated useful life 8 years Net annual cash flows from towing $7,990 Overhaul costs (end of year 4) $5,970 Salvage value $12,000 Wildhorse's good friend, Rick Ryan, stopped by. He is trying to convince Wildhorse that the tow truck will have other benefits that Wildhorse hasn't even considered. First, he says, cars that need towing need to be fixed. Thus, when Wildhorse tows them to her facility, her repair revenues will increase. Second, he notes that the tow truck could have a plow mounted on it, thus saving Wildhorse the cost of plowing her parking lot. (Rick will give her a used plow blade for free if Wildhorse will plow Rick's driveway.) Third, he notes that the truck will generate goodwill; people who are rescued by Wildhorse's tow truck will feel grateful and might be more inclined to use her service station in the future or buy gas there. Fourth, the tow truck will have Wildhorse's Auto Care on its doors, hood, and back tailgate-a form of free advertising wherever the tow truck goes. Rick estimates that, at a minimum, these benefits would be worth the following. Additional annual net cash flows from repair work $3,010 Annual savings from plowing 740 Additional annual net cash flows from customer "goodwill 980 Additional annual net cash flows resulting from free advertising 750 The company's cost of capital is 9%. (a) Calculate the net present value, ignoring the additional benefits described by Rick. (If the net present value is negative, use either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Round answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value $ Should the tow truck be purchased? The tow truck be purchased. (b) Calculate the net present value, incorporating the additional benefits suggested by Rick. (If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). Round answer to 0 decimal places, e.g. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value Should the tow truck be purchased? The tow truck be purchased
