Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Your answer is incorrect. Try again. Suppose Rick has been overly optimistic in his assessment of the value of the additional benefits. At a minimum,
Your answer is incorrect. Try again. Suppose Rick has been overly optimistic in his assessment of the value of the additional benefits. At a minimum, howw much would the additional benefits have to be worth in order for the project to be accepted? (Round answer to o decimal places e-g- 125.) Present value of the intangible benefits 2926 Click if you would like to Show Work for this question: Open Show Work Problem 24-4A Jane's Auto Care is considering the purchase of a new to truck. The garage doesnt currently have a tow truck, and the $60,040 price tag for a new truck would represent a major expenditure, Jane Austen, owner of the garage, has compiled the estimates shown below in trying to determine whether the tow truck should be purchased Initial cost Estimated useful life Net annual cash flows from towing $60,040 8 years $7,970 Overhaul costs (end of year 4) 5,970 Salvage value $12,000 Jane's good friend, Rick Ryan, stopped by. He is trying to convince Jane that the tow truck will have other benefits that Jane hasn't even considered. First, he says, cars that need repair revenues will increase. Second, he notes that the tow truck could have a plow mounted on it, thus saving Jane the cost of plowing her parking lot. (Rick will give her a used plow blade for free if Jane will plow Rick's driveway.) Third, he notes that the truck will gnerate goodwill, people who are escued by Jane s to truck will feel grateful and might be more inclined to use her service station in th future or buy gas there. Fourth, the tow truck will have Jane'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. need to be fixed. Thus, when Jane tows them to her facility, her Additional annual net cash flows from repair work Annual savings from plowing Additional annual net cash flows from customer "goodwill Additional annual net cash flows resulting from free advertising $3,010 760 960 750 The company's cost of capital is 9%
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started