Bilboa Freightlines, SA 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 US dollar as its currency Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Salvage value now Salvage value eight years from now Present Truck New Truck 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. Purchase the new truck Keep the old truck $ 34,000 $46,000 19,000 7,000 10,000 7,000 17,000 2,000 Present Value of Net Cash Flows The company computes depreciation on a straight line basis. All investment projects are evaluated using a t Click here to view Exhibit 10.1 and Exhibit 10.2 to determine the appropriate discount factors) using tables. a 16% discount rate. 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.)
Bilboa Freightlines, SA 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 US dollar as its currency Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Salvage value now Salvage value eight years from now Present Truck New Truck 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. Purchase the new truck Keep the old truck $ 34,000 $46,000 19,000 7,000 10,000 7,000 17,000 2,000 Present Value of Net Cash Flows The company computes depreciation on a straight line basis. All investment projects are evaluated using a t Click here to view Exhibit 10.1 and Exhibit 10.2 to determine the appropriate discount factors) using tables. a 16% discount rate. 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.)
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:1-b. Should Bilboa Freightlines keep the old truck or purchase the new one?
O 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
Transcribed Image Text:ok
at
ances
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):
Purchase cost new
Remaining book value
Overhaul needed now i
Annual cash operating costs
Salvage value now
Salvage value eight years from now
Present
Truck
$ 34,000
19,000
7,000
Purchase the new truck
Keep the old truck
10,000
12,000
2,000
Present Value of Net
Cash Flows
New
Truck
$46,000
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.
7,000
5,000
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.)
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