Bilboa Freightlines, S.A. of Panama has a small truck that it uses for local deliveries. The truck is in bad repair and must be either overhauled or replaced with a new truck. The company has assembled the following information (Panama uses the U.S. dollar as its currency): New Truck $ 47,500 Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Salvage value now Salvage value eight years from now Present Truck $35,000 20,000 7,500 11,000 12,500 2,200 7,500 5,200 If the company keeps and overhauls its present delivery truck, then the truck will be usable for eight more years. If a new truck is purchased, it will be used for eight years, after which it will be traded in on another truck. The new truck would be diesel-fuelled, 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. Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. Required: 1-a. Determine the present value of net cash flows using the total-cost approach. (Negative amounts should be indicated with a minus sign. Round discount factor(s) to 3 decimal place.) Present Value of Net Cash Flows Purchase the new truck Keep the old truck 1-b. Should Bilboa Freightlines keep the old truck or purchase the new one? Purchase the new truck o keep the old truck 2. Using the incremental-cost approach, determine the net present value in favor of (or against) purchasing the new truck? (Negative amounts should be indicated with a minus sign. Round discount factor(s) to 3 decimal place.) Net present value EXHIBIT 10-1 Present Value of $1 P= Fn (1 + r) Period 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 40% 1 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 0.820 0.806 0.794 0.781 0.769 0.714 2 0.925 0.907 0.890 0.857 0.826 0.797 0.769 0.743 0.718 0.694 0.672 0.650 0.630 0.610 0.592 0.510 3 0.889 0.864 0.840 0.794 0.751 0.712 0.675 0.641 0.609 0.579 0.551 0.524 0.500 0.477 0.455 0.364 0.855 0.823 0.792 0.735 0.683 0.636 0.592 0.552 0.516 0.482 0.451 0.423 0.397 0.373 0.350 0.260 5 0.822 0.784 0.747 0.681 0.621 0.567 0.519 0.476 0.437 0.402 0.370 0.341 0.315 0.291 0.269 0.186 0.790 0.746 0.705 0.630 0.564 0.507 0.456 0.410 0.370 0.335 0.303 0.275 0.250 0.227 0.207 0.133 7 0.760 0.711 0.665 0.583 0.513 0.452 0.400 0.354 0.314 0.279 0.249 0.222 0.198 0.178 0.159 0.095 8 0.731 0.677 0.627 0.540 0.467 0.404 0.351 0.305 0.266 0.233 0.204 0.179 0.157 0.139 0.123 0.068 9 0.703 0.645 0.592 0.500 0.424 0.361 0.308 0.263 0.225 0.194 0.167 0.144 0.125 0.108 0.094 0.048 10 0.676 0.614 0.558 0.463 0.386 0.322 0.270 0.227 0.191 0.162 0.137 0.116 0.099 0.085 0.073 0.035 11 0.650 0.585 0.527 0.429 0.350 0.287 0.237 0.195 0.162 0.135 0.112 0.094 0.079 0.066 0.056 0.025 12 0.625 0.557 0.497 0.397 0.319 0.257 0.208 0.168 0.137 0.112 0.092 0.076 0.062 0.052 0.043 0.018 13 0.601 0.530 0.469 0.368 0.290 0.229 0.182 0.145 0.116 0.093 0.075 0.061 0.050 0.040 0.033 0.013 14 0.577 0.505 0.442 0.340 0.263 0.205 0.160 0.125 0.099 0.078 0.062 0.049 0.039 0.032 0.025 0.009 15 0.555 0.481 0.417 0.315 0.239 0.183 0.140 0.108 0.084 0.065 0.051 0.040 0.031 0.025 0.020 0.006 16 0.534 0.458 0.394 0.292 0.218 0.163 0.123 0.093 0.071 0.054 0.042 0.032 0.025 0.019 0.015 0.005 17 0.513 0.436 0.371 0.270 0.198 0.146 0.108 0.080 0.060 0.045 0.034 0.026 0.020 0.015 0.012 0.003 18 0.494 0.416 0.350 0.250 0.180 0.130 0.095 0.069 0.051 0.038 0.028 0.021 0.016 0.012 0.009 0.002 19 0.475 0.396 0.331 0.232 0.164 0.116 0.083 0.060 0.043 0.031 0.023 0.017 0.012 0.009 0.007 0.002 20 0.456 0.377 0.312 0.215 0.149 0.104 0.073 0.051 0.037 0.026 0.019 0.014 0.010 0.007 0.005 0.001 21 0.439 0.359 0.294 0.199 0.135 0.093 0.064 0.044 0.031 0.022 0.015 0.011 0.008 0.006 0.004 0.001 22 0.422 0.342 0.278 0.184 0.123 0.083 0.056 0.038 0.026 0.018 0.013 0.009 0.006 0.004 0.003 0.001 23 0.406 0.326 0.262 0.170 0.112 0.074 0.049 0.033 0.022 0.015 0.010 0.007 0.005 0.003 0.002 24 0.390 0.310 0.247 0.158 0.102 0.066 0.043 0.028 0.019 0.013 0.008 0.006 0.004 0.003 0.002 25 0.375 0.295 0.233 0.146 0.092 0.059 0.038 0.024 0.016 0.010 0.007 0.005 0.003 0.002 0.001 26 0.361 0.281 0.220 0.135 0.084 0.053 0.033 0.021 0.014 0.009 0.006 0.004 0.002 0.002 0.001 27 0.347 0.268 0.207 0.125 0.076 0.047 0.029 0.018 0.011 0.007 0.005 0.003 0.002 0.001 0.001 28 0.333 0.255 0.196 0.116 0.069 0.042 0.026 0.016 0.010 0.006 0.004 0.002 0.002 0.001 0.001 29 0.321 0.243 0.185 0.107 0.063 0.037 0.022 0.014 0.008 0.005 0.003 0.002 0.001 0.001 30 0.308 0.231 0.174 0.099 0.057 0.033 0.020 0.012 0.007 0.004 0.003 0.002 0.001 0.001 40 0.208 0.142 0.097 0.046 0.022 0.011 0.005 0.003 0.001 0.001 EXHIBIT 10-2 Present Value of an Annuity of $1 1 1 Pn (1 + r)" + Period 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 40% 1 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 0.820 0.806 0.794 0.781 0.769 0.714 2 1.886 1.859 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528 1.492 1.457 1.424 1.392 1.361 1.224 2.775 2.723 2.673 2.577 2.487 2.402 2.322 2.246 2.174 2.106 2.042 1.981 1.923 1.868 1.816 1.589 3 4 3.630 3.546 3.465 3.312 3.170 3.037 2.914 2.798 2.690 2.589 2.494 2.404 2.320 2.241 2.166 1.879 4.452 4.330 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991 2.864 2.745 2.635 2.532 2.436 2.035 5 6 5.242 5.076 4.917 4.623 4.355 4.111 3.889 3.685 3.498 3.326 3.167 3.020 2.885 2.759 2.643 2.168 7 6.002 5.786 5.582 5.206 4.868 4.564 4.288 4.039 3.812 3.605 3.416 3.242 3.083 2.937 2.802 2.263 6.733 6.463 6.210 5,747 5.335 4.968 4.639 4.344 4.078 3.837 3.619 3.421 3.241 3.076 2.925 2.331 8 9 7.435 7.108 6.802 6.247 5.759 5.328 4.946 4.607 4.303 4.031 3.786 3.566 3.366 3.184 3.019 2.379 10 8.111 7.722 7.360 6.710 6.145 5.650 5.216 4.833 4.494 4.192 3.923 3.662 3.465 3.269 3.092 2.414 11 8.760 8.306 7.887 7.139 6.495 5.938 5.453 5.029 4.656 4.327 4.035 3.776 3.544 3.335 3.147 2.438 12 9.385 8.863 8.384 7.536 6.814 6.194 5.660 5.197 4.793 4.439 4.127 3.851 3.606 3.387 3.190 2.456 13 9.986 9.394 8.853 7.904 7.103 6.424 5.842 5.342 4.910 4.533 4.203 3.912 3.656 3.427 3.223 2.468 14 10.563 9.899 9.295 8.244 7.367 6.628 6.002 5.468 5.008 4.611 4.265 3.962 3.695 3.459 3.249 2.477 15 11.118 10.380 9.712 8.559 7.606 6.811 6.142 5.575 5.092 4.675 4.315 4.001 3.726 3.483 3.268 2.484 16 11.52 10.838 10.106 8.851 7.824 6.974 6.265 5.669 5.162 4.730 4.357 4.033 3.751 4.033 3.751 3.503 3.283 2.489 17 12.166 11274 10.477 9.122 8.022 7.120 6.373 5.749 5.222 4.775 4.391 4.059 3.771 3.518 3.295 2.492 18 12.659 11.590 10.828 9372 8.201 7.250 6.467 5.818 5.273 4.812 4.419 4.080 3.786 3.786 3.529 3.304 2.494 19 13.134 12.085 11.158 9.604 8.365 7366 6.550 5.877 5.316 4.844 4.442 4.097 4.097 3.79 3.539 3.311 2.496 20 13.590 12.462 11.470 9818 8.514 7.469 6.623 5.929 5,353 4.870 4.460 4.110 3.808 3.546 3.316 2.497 21 14.029 12.821 11.764 10.017 8.649 7.562 6.687 5.973 5.384 4.891 5.973 5.384 4,891 4.476 4.121 3.816 3.551 3.320 2,498 22 14.451 13.163 12.042 10.201 8.772 7.645 6743 6.011 5.410 4.909 4.488 4.130 3.822 3.556 3.323 2.498 23 14.857 13.489 12.303 10.371 8.883 7718 6.792 6.044 5.432 4.925 4.499 4.137 3.827 3.559 3.325 2.499 24 15.247 13.799 12.550 10.529 8.985 7.784 6.835 6.073 5.451 4,937 4,507 4.143 3.831 3.562 3.327 2,499 25 15.622 14.094 12.783 10.675 9.077 7.843 6.873 6.097 5.467 4.948 4.514 4.147 3.834 3.564 3.329 2.499 26 15.983 14.375 13.003 10810 9.161 7.89 6.906 6.118 5.480 4.956 4.520 4.151 3.837 3.566 3.330 2.500 27 16.330 14.643 13.211 10.935 9.237 7.943 6935 6.136 5.492 4.964 4.525 4.154 3.839 3.567 3.331 2.500 28 16.663 14.898 13.406 11.051 9.307 7.984 6.961 6.152 5.502 4.970 4.528 4.157 3.840 3.568 3.331 2,500 29 16.984 15.141 13.591 11.158 9.370 8.022 6.983 6.166 5.510 4.975 4,531 4.159 3.841 3.569 3.332 2.500 30 17292 15.373 13.765 11258 9.427 8.055 7.003 6.177 5.517 4.979 4.534 4.534 4.160 3.842 3.569 3.332 2.500 40 19.793 17.159 15.046 11.925 9.779 8.244 7.105 6.234 5.548 4.997 4.544 4.166 3.846 3.571 3.333 2.500