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Bilboa Freightlines, SA, of Panama, has a small truck that it uses for intracity deliveries. The truck is worn out and must be eithen overhauled or replaced with a new truck. The company has assembled the following information: Present Truck New Truck Purchase cost new $ 36,000 Remaining book value Overhaul needed now Annual cash operating costs Salvage value-now Salvage value-five years from now $ 27,000 $ 14,000 $ 13,000 $ 14,000 $ 9,000 $ 5,000 $ 11,500 $ 8,000 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 13% discount rate. Click here to view Exhibit 148-1 and Exhibit 148-2, 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? 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.) Net present value Required 1 Required 2 >

Bilboa Freightlines, SA, of Panama, has a small truck that it uses for intracity deliveries. The truck is worn out and must be eithen overhauled or replaced with a new truck. The company has assembled the following information: Present Truck New Truck Purchase cost new $ 36,000 Remaining book value Overhaul needed now Annual cash operating costs Salvage value-now Salvage value-five years from now $ 27,000 $ 14,000 $ 13,000 $ 14,000 $ 9,000 $ 5,000 $ 11,500 $ 8,000 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 13% discount rate. Click here to view Exhibit 148-1 and Exhibit 148-2, 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? 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.) Net present value Required 1 Required 2 >

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 17P
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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: Present TEuck $ 27,000 $ 14,000 $ 13,000 $ 14,000 $ 9,000 $ 5,000 New Truck Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Salvage value-now Salvage value-five years from now $ 36,000 $ 11,500 $ 8,000 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. ces The company computes depreciation on a straight-line basis. All investment projects are evaluated using a 13% discount rate. Click here to view Exhibit 148-1 and Exhibit 148-2, 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? 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.) Net present value Required 1 Required 2 >
Transcribed Image Text: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: Present TEuck $ 27,000 $ 14,000 $ 13,000 $ 14,000 $ 9,000 $ 5,000 New Truck Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Salvage value-now Salvage value-five years from now $ 36,000 $ 11,500 $ 8,000 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. ces The company computes depreciation on a straight-line basis. All investment projects are evaluated using a 13% discount rate. Click here to view Exhibit 148-1 and Exhibit 148-2, 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? 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.) Net present value Required 1 Required 2 >
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