Net Present Value of Cash Flows Assignment

We were unable to transcribe this imageBilboa Freightlines, S.A., of Panama, which 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: New Truck $ 36,000 Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Salvage value-now Salvage value-five years from now Present Truck $ 31,000 $ 24,000 $ 23,000 $ 22,000 $ 5,000 $ 20,000 $ 19,500 $ 12,000 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 7% discount rate. Click here to view Exhibit 13B-1 and Exhibit 13B-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? 3. Should Bilboa Freightlines keep the old truck or purchase the new one? Required 1 Required 2

Required 3 What is the net present value of the “keep the old truck” alternative? (Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount.) Net present value Required 1 Required 2 > We were unable to transcribe this image required 1 Required 2 Required 3 Should Bilboa Freightlines keep the old truck or purchase the new one? O Purchase the new truck Okeep the old truck The Riteway Ad Agency provides cars for its sales staff. In the past, the company has always purchased its cars from a dealer and then sold the cars after three years of use. The company's present fleet of cars is three years old and will be sold very shortly. To provide a replacement fleet, the company is considering two alternatives: Purchase alternative: The company can purchase the cars, as in the past, and sell the cars after three years of use. Ten cars will be needed, which can be purchased at a discounted price of $21,000 each. If this alternative is accepted, the following costs will be incurred on the fleet as a whole: Annual cost of servicing, taxes, and licensing Repairs, first-year Repairs, second-year Repairs, third year $ 3,700 $ 1,600 $ 4,100 $ 6,100 At the end of three years, the fleet could be sold for one-half of the original purchase price. Lease alternative: The company can lease the cars under a three-year lease contract. The lease cost would be $56,000 per year (the first payment due at the end of Year 1). As part of this lease cost, the owner would provide all servicing and repairs, license the cars, and pay all the taxes. Riteway would be required to make a $13,500 security deposit at the beginning of the lease period, which would be refunded when the cars were returned to the owner at the end of the lease contract. Riteway Ad Agency's required rate of return is 15%. Click here to view Exhibit 13B-1 and Exhibit 13B-2, to determine the appropriate discount factor(s) using tables. Required: 1. What is the net present value of the cash flows associated with the purchase alternative? 2. What is the net present value of the cash flows associated with the lease alternative? 3. Which alternative should the company accept? Required 1 Required 2 Required 3 What is the net present value of the cash flows associated with the purchase alternative? (Round your final answer to a whole dollar amount. Enter a negative amount with a minus sign.) Net present value Required 1 Required 2 > We were unable to transcribe this image required 1 Required 2 Required 3 Which alternative should the company accept? please alternative TO Purchase alternative Required 2 Required 3. .