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 Truck New Truck Purchase cost new $ 30,000 $ 39,000 Remaining book value $ 17,000 - Overhaul needed now $ 16,000 - Annual cash operating costs $ 15,500 $ 14,000 Salvage value-now $ 9,000 - Salvage value-five years from now $ 8,000 $ 10,000 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 9% discount rate. Click here to view Exhibit 14B-1 and Exhibit 14B-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? Can you please help me solve it step by step without using excel? I need to learn how it works. Thank you so much
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 Truck | New Truck | |
|---|---|---|
| Purchase cost new | $ 30,000 | $ 39,000 |
| Remaining book value | $ 17,000 | - |
| Overhaul needed now | $ 16,000 | - |
| Annual cash operating costs | $ 15,500 | $ 14,000 |
| Salvage value-now | $ 9,000 | - |
| Salvage value-five years from now | $ 8,000 | $ 10,000 |
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 9% discount rate.
Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.
Required:
1. What is the
2. What is the net present value of the “purchase the new truck” alternative?
Can you please help me solve it step by step without using excel? I need to learn how it works. Thank you so much
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