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Pompeil's Pizza has a delivery car that it uses for pizza deliveries. The transmission needs to be replaced and there are several other repairs that need to be done. The car s nearing the end of its life, so the options are to either overhaul the car or replace it with a new car. Pompeil's has put together the following budgetary items: New Car Purchase cost new Transmission and other repairs -75,250.11 X -73,168.20 X Present Car Present Car New Car B. What should Pompeil's do? Pompeil's should retain the present car $8,500 12,000 6,000 500 Annual cash operating cost Fair market value now Fair market value in five years 6,000 If Pompeir's replaces the transmission of the pizza delivery vehicle, they expect to be able to use the vehicle for another 5 years. If they sell the old vehicle and purchase a new vehicle, they will use that vehicle for 5 years and then trade it in for another new pizza delivery vehicle. If they trade for the new delivery vehicle, their operating expenses will decrease because the new vehicle is more gas efficient and the maintenance on a new car is less. This project is analyzed using a discount rate of 15%. (Click here to see present value and future value tables) A. Calculate the NPV on both Cars. Round your present value factor to three decimal places and the rest to nearest dollar. $32,000 ✓. 11,000

Pompeil's Pizza has a delivery car that it uses for pizza deliveries. The transmission needs to be replaced and there are several other repairs that need to be done. The car s nearing the end of its life, so the options are to either overhaul the car or replace it with a new car. Pompeil's has put together the following budgetary items: New Car Purchase cost new Transmission and other repairs -75,250.11 X -73,168.20 X Present Car Present Car New Car B. What should Pompeil's do? Pompeil's should retain the present car $8,500 12,000 6,000 500 Annual cash operating cost Fair market value now Fair market value in five years 6,000 If Pompeir's replaces the transmission of the pizza delivery vehicle, they expect to be able to use the vehicle for another 5 years. If they sell the old vehicle and purchase a new vehicle, they will use that vehicle for 5 years and then trade it in for another new pizza delivery vehicle. If they trade for the new delivery vehicle, their operating expenses will decrease because the new vehicle is more gas efficient and the maintenance on a new car is less. This project is analyzed using a discount rate of 15%. (Click here to see present value and future value tables) A. Calculate the NPV on both Cars. Round your present value factor to three decimal places and the rest to nearest dollar. $32,000 ✓. 11,000

Principles of Accounting Volume 2
Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 8PA: Pompeiis Pizza has a delivery car that it uses for pizza deliveries. The transmission needs to be...
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Print Rem Pompeil's Pizza has a delivery car that it uses for pizza deliveries. The transmission needs to be replaced and there are several other repairs that need to be done. The car s nearing the end of its life, so the options are to either overhaul the car or replace it with a new car. Pompell's has put together the following budgetary items: Present Car New Car Purchase cost new Transmission and other repairs. Annual cash operating cost Fair market value now. $8,500 12,000 6,000 500 ✓ $32,000 11,000 Fair market value in five years 6,000 If Pompeii's replaces the transmission of the pizza delivery vehicle, they expect to be able to use the vehicle for another 5 years. If they sell the old vehicle and purchase. a new vehicle, they will use that vehicle for 5 years and then trade it in for another new pizza delivery vehicle. If they trade for the new delivery vehicle, their operating expenses will decrease because the new vehicle is more gas efficient and the maintenance on a new car is less. This project is analyzed using a discount rate of 15%, (Click here to see present value and future value tables) A. Calculate the NPV on both Cars. Round your present value factor to three decimal places and the rest to nearest dollar. Present Car S -75,250.11 X New Car -73,168.20 x B. What should Pompeil's do? Pompeil's should retain the present car
Transcribed Image Text:Print Rem Pompeil's Pizza has a delivery car that it uses for pizza deliveries. The transmission needs to be replaced and there are several other repairs that need to be done. The car s nearing the end of its life, so the options are to either overhaul the car or replace it with a new car. Pompell's has put together the following budgetary items: Present Car New Car Purchase cost new Transmission and other repairs. Annual cash operating cost Fair market value now. $8,500 12,000 6,000 500 ✓ $32,000 11,000 Fair market value in five years 6,000 If Pompeii's replaces the transmission of the pizza delivery vehicle, they expect to be able to use the vehicle for another 5 years. If they sell the old vehicle and purchase. a new vehicle, they will use that vehicle for 5 years and then trade it in for another new pizza delivery vehicle. If they trade for the new delivery vehicle, their operating expenses will decrease because the new vehicle is more gas efficient and the maintenance on a new car is less. This project is analyzed using a discount rate of 15%, (Click here to see present value and future value tables) A. Calculate the NPV on both Cars. Round your present value factor to three decimal places and the rest to nearest dollar. Present Car S -75,250.11 X New Car -73,168.20 x B. What should Pompeil's do? Pompeil's should retain the present car
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