• REQUIRED COMPONETS:
  • Two Logic IF statements MUST be used to label the Decision as being in favor of overhauling the old truck or in favor of purchasing the new truck. One Logic IF for the Total Cost Approach and one Logic IF for the Incremental Cost Approach. This is a required component for this assignment. If you do not complete both Logic IF stmts, you will not receive credit for this assignment.
  • Excels PV function must be used to calculate the present value of the cash flows. Do not use the factor tables as is illustrated in the text.
  • A data block and cell referencing is required.
• There is NO What IF part to this assignment.

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: New Truck $ 30,000 Purchase cost (new) Remaining book value Overhaul needed now Annual cash operating costs Salvage value-now Salvage value-five years from now Present Truck $ 21,000 $ 11,500 $ 7,000 $ 10,000 $ 9,000 $ 1,000 $ 6,500 $ 4,000 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 16% discount rate. Data Block Bilboa Freightlines Required Rate of Return 16% Present Truck New Truck Year/ Periods Purchase cost new Overhaul needed now Annual cash operating costs Salvage value now Salvage value five years from now Bilboa Freightlines, S.A. Total Cost Approach Net Present Value Calculation Amount of Year(s) Cash Flows PV Item Overhaul old truck: Overhaul now Annual cash operating costs Salvage value in five years Net Present Value Purchase new truck: Purchase cost new Salvage value of old truck now Annual cash operating costs Salvage value of new truck in five years Net Present Value Logic IF statement in this cell A20 Bilboa Freightlines, S.A. Incremental Cost Approach Net Present Value Calculation Amount of Year(s) Cash Flows Item PV Incremental investment in favor of old truck Additional annual cash operating costs Lost salvage value in five years Lost salvage value for old truck now Logic IF statement in this cell A32