Bilboa Freightlines, S.A., of Panama, has a small truck that it uses for intracity deliveries. The truck is worn out and must be eitheroverhauled or replaced with a new truck. The company has assembled the following information:Purchase cost newRemaining book valueOverhaul needed nowAnnual cash operating costsSalvage value-nowSalvage value-five years from nowPresentTruck$ 25,000$ 12,000NewTruck$ 31,000$ 8,000$ 13,000 $ 10,500$ 6,000$5,000$ 6,000If the company keeps and overhauls its present delivery truck, then the truck will be usable for five more years. If a new truck ispurchased, 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 14% discount rate.Click here to view Exhibit 78-1 and Exhibit 78-2. 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?Net present valueComplete this question by entering your answers in the tabs below.Required 1 Required 2 Required 3What is the net present value of the "keep the old truck" alternative? (Enter negative amount with a minus sign. Round yourfinal answer to the nearest whole dollar amount.)Required 1Required 2 >

Net Present ValueNet present value (NPV) is a financial metric that represents the difference…

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?

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?

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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Question

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
$ 25,000
$ 12,000
New
Truck
$ 31,000
$ 8,000
$ 13,000 $ 10,500
$ 6,000
$5,000
$ 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 14% discount rate.
Click here to view Exhibit 78-1 and Exhibit 78-2. 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?
Net present value
Complete this question by entering your answers in the tabs below.
Required 1 Required 2 Required 3
What is the net 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.)
Required 1
Required 2 >

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Step 4: 2. Net present value - Purchase the new truck

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Step 5: 3. Bilboa Freightlines keep the old truck or purchase of new truck

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