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
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
Section: Chapter Questions
Problem 1PS
Related questions
Question
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
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 4 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education