Wildhorse's Auto Care is considering the purchase of a new tow truck. The garage doesn't currently have a tow truck, and the $59,950price tag for a new truck would represent a major expenditure. Wildhorse Austen, owner of the garage, has compiled the followingestimates in trying to determine whether the tow truck should be purchased.Initial cost$59,950Estimated useful life8 yearsNet annual cash flows from towing$7,990Overhaul costs (end of year 4)$5,970Salvage value$12,000Show Transcribed TextدWildhorse's good friend, Rick Ryan, stopped by. He is trying to convince Wildhorse that the tow truck will have other benefits thatWildhorse hasn't even considered. First, he says, cars that need towing need to be fixed. Thus, when Wildhorse tows them to herfacility, her repair revenues will increase. Second, he notes that the tow truck could have a plow mounted on it, thus saving Wildhorsethe cost of plowing her parking lot. (Rick will give her a used plow blade for free if Wildhorse will plow Rick's driveway.) Third, he notesthat the truck will generate goodwill; people who are rescued by Wildhorse's tow truck will feel grateful and might be more inclined touse her service station in the future or buy gas there. Fourth, the tow truck will have "Wildhorse's Auto Care" on its doors, hood, andback tailgate-a form of free advertising wherever the tow truck goes. Rick estimates that, at a minimum, these benefits would beworth the following.Additional annual net cash flows from repair work$3,010Annual savings from plowing740Additional annual net cash flows from customer "goodwill"980Additional annual net cash flows resulting from free advertising750The company's cost of capital is 9%.Show Transcribed TextI have to find NPV and determine if I should buy the truck without Rick's advice and with Rick's advice.I also need to find the present value of the intangible benefits.

The investment's cash inflows and outflows are computed to have a net present value (NPV) over a…

Answered: ve to find NPV and determine if I…

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

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Thank you! One last q, how should the garage charge customers to endure it is profitable?

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ve to find NPV and determine if I should buy the truck without Rick's advice and with Rick's advice. o need to find the present value of the intangible benefits.