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 Purchase cost new Remaining book value. Overhaul needed now i Annual cash operating costs Salvage value-now Salvage value-five years from now Present Truck $36,000 $ 23,000 $ 22,000 $ 17,500 $ 12,000 $ 15,000 New Truck $ 48,000 $ 16,000 $ 6,000 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 9% discount rate. Click here to view Exhibit 14B-1 and Exhibit 14B-2. to determine the appropriate discount factor(s) using tables.
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 Purchase cost new Remaining book value. Overhaul needed now i Annual cash operating costs Salvage value-now Salvage value-five years from now Present Truck $36,000 $ 23,000 $ 22,000 $ 17,500 $ 12,000 $ 15,000 New Truck $ 48,000 $ 16,000 $ 6,000 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 9% discount rate. Click here to view Exhibit 14B-1 and Exhibit 14B-2. to determine the appropriate discount factor(s) using tables.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. What is the net present value of the "keep the old truck" alternative?
2. What is the net present value of the "purchase the new truck" alternative?
3. Should Bilboa Freightlines keep the old truck or purchase the new one?
Complete this question by entering your answers in the tabs below.
Required 1. Required 2 Required 3
What is the pet present value of the "keep the old truck" alternative? (Enter negative amount with a minus sign. Round your
final answer to the nearest whole dollar amount.)
Net present value
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Required 2 >
![Problem 14-28 (Algo) Net Present Value Analysis [LO14-2]
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:
Purchase cost new
Remaining book value
Overhaul needed now
Annual cash operating costs
Salvage value-now
Salvage value-five years from now
Present
Truck
$36,000
$ 23,000
$ 22,000
$ 17,500
$ 12,000
$ 15,000
New Truck
$ 48,000
$ 16,000
$6,000
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 9% discount rate.
Click here to view Exhibit 14B-1 and Exhibit 148-2. to determine the appropriate discount factor(s) using tables.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F569aa9ef-76db-41a4-88e9-376c0d052363%2F590c37f1-cc32-4d2d-a68d-59267f1fc2df%2Fuzlrtd8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 14-28 (Algo) Net Present Value Analysis [LO14-2]
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:
Purchase cost new
Remaining book value
Overhaul needed now
Annual cash operating costs
Salvage value-now
Salvage value-five years from now
Present
Truck
$36,000
$ 23,000
$ 22,000
$ 17,500
$ 12,000
$ 15,000
New Truck
$ 48,000
$ 16,000
$6,000
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 9% discount rate.
Click here to view Exhibit 14B-1 and Exhibit 148-2. to determine the appropriate discount factor(s) using tables.
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