Problem 14-28 (Algo) Net Present Value Analysis [LO14-2] Bilboa Freightlines, S.A., of Panama, uses a truck for intracity deliveries that has worn out and must be overhauled or replaced. The company 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 New Truck $ 28,000 $ 38,000 $ 15,000 $ 14,000 $ 14,500 $ 13,000 $ 10,000 $ 9,000 $12,000 If the company overhauls its present delivery truck, then it will be usable for five more years. If a new truck is purchased, it will be used for five years and then traded in for another truck. The new truck would be diesel-operated, resulting in lower annual operating costs, as shown above. The company computes depreciation on a straight-line basis and uses a 13% discount rate. 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?

Problem 14-28 (Algo) Net Present Value Analysis [LO14-2] Bilboa Freightlines, S.A., of Panama, uses a truck for intracity deliveries that has worn out and must be overhauled or replaced. The company 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 New Truck $ 28,000 $ 38,000 $ 15,000 $ 14,000 $ 14,500 $ 13,000 $ 10,000 $ 9,000 $12,000 If the company overhauls its present delivery truck, then it will be usable for five more years. If a new truck is purchased, it will be used for five years and then traded in for another truck. The new truck would be diesel-operated, resulting in lower annual operating costs, as shown above. The company computes depreciation on a straight-line basis and uses a 13% discount rate. 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?

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 44P: Net Present Value, Uncertainty Ondi Airlines is interested in acquiring a new aircraft to service a...

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genow.com/ilm/takeAssignment/takeAssignmentMain.do?inprogress-true stom Order ♥ e < eBook costs. Gilroy Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,200. The freight and installation costs for the equipment are $650. If purchased, annual repairs and maintenance are estimated to be $430 per year over the 4-year useful life of the equipment. Alternatively, Gilroy can lease the equipment from a domestic supplier for $1,580 per year for 4 years, with no additional Unit costs: Purchase price Freight and installation Repair and maintenance (4 years) Lease (4 years) Prepare a differential analysis dated December 11 to determine whether Gilroy should Lease Equipment (Alternative 1) or Buy Equipment (Alternative 2). Hint: This is a lease-or-buy decision, which must be analyzed from the perspective of the equipment user, as opposed to the equipment owner. If an amount is zero, enter "0". For those boxes in which you must enter…
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1 Problem 14-18 (Algo) Net Present Value Analysis [LO14-2] Print Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 17% and it estimated the following costs and revenues for the new product: Cost of equipment needed Working capital needed Overhaul of the equipment in two years Salvage value of the equipment in four years. Annual revenues and costs: Sales revenues Variable expenses Fixed out-of-pocket operating costs $ 190,000 $ 69,000 $ 6,000 $ 16,500 $ 340,000 $ 165,000 $ 79,000 When the project concludes in four years, the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: Calculate the net present value of this investment opportunity. Note: Round your final answer to the nearest whole dollar amount. Net present value
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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…
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