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Calculate the net present value, ignoring the additional benefits described by Rick. negative signjpreceding the oumt

Calculate the net present value, ignoring the additional benefits described by Rick. negative signjpreceding the oumt

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Unit VIII question 19 part a 

Pharoah's Auto Care is considering the purchase of a new tow truck. The garage doesn't currently have a tow truck, and the $59,960 price tag for a new truck would represent a major expenditure. Pharoah Austen, owner of the garage, has compiled the following estimates in trying to determine whether the tow truck should be purchased. Initial cost 096'65 Estimated useful life B years Net annual cash flows from towing 0867 Overhaul costs (end of year 4) $5,960 Salvage value $12,000 Pharoah's good friend, Rick Ryan, stopped by. He is trying to convince Pharoah that the tow truck will have other benefits that Pharoah hasn't even considered. First, he says, cars that need towing need to be fixed. Thus, when Pharoah tows them to her facility, her repair revenues will increase. Second, he notes that the tow truck could have a plow mounted on it, thus saving Pharoah the cost of plowing herparking lot. (Rickwill give her a used plow blade for free if Pharoah will plow Rick's driveway.) Third, he notes that the truck will generate goodwill; people who are rescued by Pharoah's tow truck will feel grateful and might be more inclined to use her service station in the future or buy gas there. Fourth, the tow truck will have "Phargah'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. Additional annual net cash flows from repair work $2,990 Annual savings from plowing Additional annual net cash flows from customer"goodwill", 1,010 Additional annual net cash flows resulting from free advertising 076 The company's cost of capital is 9%. Click here to view PV table. (e) Calculate the net present value, ignoring the additional benefits described by Rick. (If the net present value is negative, use either a negative sign preceding the number e.g. 45 or parentheses e.g. (45). Round answer to O decimal places, eg. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value Should the tow truck be purchased? The tow truck be purchased. eTextbook and Media
Transcribed Image Text:Pharoah's Auto Care is considering the purchase of a new tow truck. The garage doesn't currently have a tow truck, and the $59,960 price tag for a new truck would represent a major expenditure. Pharoah Austen, owner of the garage, has compiled the following estimates in trying to determine whether the tow truck should be purchased. Initial cost 096'65 Estimated useful life B years Net annual cash flows from towing 0867 Overhaul costs (end of year 4) $5,960 Salvage value $12,000 Pharoah's good friend, Rick Ryan, stopped by. He is trying to convince Pharoah that the tow truck will have other benefits that Pharoah hasn't even considered. First, he says, cars that need towing need to be fixed. Thus, when Pharoah tows them to her facility, her repair revenues will increase. Second, he notes that the tow truck could have a plow mounted on it, thus saving Pharoah the cost of plowing herparking lot. (Rickwill give her a used plow blade for free if Pharoah will plow Rick's driveway.) Third, he notes that the truck will generate goodwill; people who are rescued by Pharoah's tow truck will feel grateful and might be more inclined to use her service station in the future or buy gas there. Fourth, the tow truck will have "Phargah'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. Additional annual net cash flows from repair work $2,990 Annual savings from plowing Additional annual net cash flows from customer"goodwill", 1,010 Additional annual net cash flows resulting from free advertising 076 The company's cost of capital is 9%. Click here to view PV table. (e) Calculate the net present value, ignoring the additional benefits described by Rick. (If the net present value is negative, use either a negative sign preceding the number e.g. 45 or parentheses e.g. (45). Round answer to O decimal places, eg. 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value Should the tow truck be purchased? The tow truck be purchased. eTextbook and Media
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Unit VIII question 19 part b 

%24 Your answer is correct. Calculate the net present value, ignoring the additional benefits described by Rick (If the net present value is negative, use either a negative sign preceding the numbere.g. 45 or parentheses eg. (45) Round answer to O decimal places, e.g 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value Should the tow truck be purchased? The tow truck should not be purchased. eTextbook and Media Attempts: 1of 3 used (g) Calculate the net present value, incorporating the additional benefits suggested by Rick. (If the net presentvalueisnegative, use either a negative sign preceding the numbereg.-45 or parentheses eg. (45).Round answer to 0 decimal places, e 125. For calaulation purposes, use 5 decimal ploces as displayed in the factor table provided) Net present value Should the tow truck be purchased? The tow truck be purchased. eTextbook and Media Save for La Attempts: 0 of 3 used Submit Answer The parts of this question must be completed in order: This partwil be available vhen you complete the part above.
Transcribed Image Text:%24 Your answer is correct. Calculate the net present value, ignoring the additional benefits described by Rick (If the net present value is negative, use either a negative sign preceding the numbere.g. 45 or parentheses eg. (45) Round answer to O decimal places, e.g 125. For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value Should the tow truck be purchased? The tow truck should not be purchased. eTextbook and Media Attempts: 1of 3 used (g) Calculate the net present value, incorporating the additional benefits suggested by Rick. (If the net presentvalueisnegative, use either a negative sign preceding the numbereg.-45 or parentheses eg. (45).Round answer to 0 decimal places, e 125. For calaulation purposes, use 5 decimal ploces as displayed in the factor table provided) Net present value Should the tow truck be purchased? The tow truck be purchased. eTextbook and Media Save for La Attempts: 0 of 3 used Submit Answer The parts of this question must be completed in order: This partwil be available vhen you complete the part above.
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