Bilboa Freightlines, SA 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 US dollar as its currency Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Salvage value now Salvage value eight years from now Present Truck New Truck 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. Purchase the new truck Keep the old truck $ 34,000 $46,000 19,000 7,000 10,000 7,000 17,000 2,000 Present Value of Net Cash Flows The company computes depreciation on a straight line basis. All investment projects are evaluated using a t Click here to view Exhibit 10.1 and Exhibit 10.2 to determine the appropriate discount factors) using tables. a 16% discount rate. Required: 1-a. Determine the present value of net cash flows using the total cost approach. (Negative amounts should be indicated with a minus sign. Round discount factor(s) to 3 decimal place.)
Bilboa Freightlines, SA 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 US dollar as its currency Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Salvage value now Salvage value eight years from now Present Truck New Truck 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. Purchase the new truck Keep the old truck $ 34,000 $46,000 19,000 7,000 10,000 7,000 17,000 2,000 Present Value of Net Cash Flows The company computes depreciation on a straight line basis. All investment projects are evaluated using a t Click here to view Exhibit 10.1 and Exhibit 10.2 to determine the appropriate discount factors) using tables. a 16% discount rate. Required: 1-a. Determine the present value of net cash flows using the total cost approach. (Negative amounts should be indicated with a minus sign. Round discount factor(s) to 3 decimal place.)
Chapter14: Multinational Capital Budgeting
Section: Chapter Questions
Problem 3ST
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