PROBLEM 12-28 Net Present Value Analysis LO 12-2 Bilboa Freightlines, S.A., of Panama, has a small truck that it uses fo

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Problem 12 28 Net Present Value Analysis Lo 12 2 Bilboa Freightlines S A Of Panama Has A Small Truck That It Uses Fo 1 (48.15 KiB) Viewed 35 times

PROBLEM 12-28 Net Present Value Analysis LO 12-2 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 $30,000 Purchase cost (new) Remaining book value Overhaul needed now Annual cash operating costs Salvage value-now Salvage value-five years from now.... $21,000 $11,500 $7,000 $10,000 $9,000 $1,000 $6,500 $4,000 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-linc basis. All investment projects are evaluated using a 16% discount rate Required: 1. What is the net present value of the "keep the old truck" alternative Round to the nearest whole dollar 2. What is the net present value of the "purchase the new truck" alternitive? Round to the nearest whole dollar 3. Should Bilboa Freightlines keep the old truck or purchase the new one?