Waco Corporation is considering purchasing a new delivery truck. The truck has many advantages over the companys current truck. The new truck would cost $130,810. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $19,700. At the end of 8 years, the company will sell the truck for an estimated $42,600. Traditionally, the company has used a rule of thumb that a proposal should not be accepted unless it has a payback period that is less than 50% of the assets estimated useful life. John Doe, a new manager, has suggested that the company should not rely solely on the payback approach, but should also employ the net present value method when evaluating new projects. The companys cost of capital is 8%. Present value factor of cash inflows for 8 years is 5.747. Present value factor of cash inflow for salvage value at year 8 is 0.540.

(a) Compute the cash payback period and net present value of the proposed investment.

Cash Payback Period: years

Net Present Value $

(Hint: For the present value of net cash flows, both net annual cash flows in current value and salvage value in current value should be added together.)

(b) Does the project meet the companys cash payback criteria?

Yes or No (Write yes or no)

(c) Does it meet the net present value criteria for acceptance?

Yes or No (Write yes or no)