1-b. Should Bilboa Freightlines keep the old truck or purchase the new one?O Purchase the new truckO Keep the old truck2. Using the incremental-cost approach, determine the net present value in favor of (or against) purchasing the new truck? (Negativeamounts should be indicated with a minus sign. Round discount factor(s) to 3 decimal place.)Net present value okatancesBilboa Freightlines, S.A. of Panama has a small truck that it uses for local deliveries. The truck is in bad repair and must be eitheroverhauled or replaced with a new truck. The company has assembled the following information (Panama uses the U.S. dollar as itscurrency):Purchase cost newRemaining book valueOverhaul needed now iAnnual cash operating costsSalvage value nowSalvage value eight years from nowPresentTruck$ 34,00019,0007,000Purchase the new truckKeep the old truck10,00012,0002,000Present Value of NetCash FlowsNewTruck$46,000If the company keeps and overhauls its present delivery truck, then the truck will be usable for eight more years. If a new truck ispurchased, 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.The company computes depreciation on a straight-line basis. All investment projects are evaluated using a 16% discount rate.Click here to view Exhibit 10.1 and Exhibit 10-2. to determine the appropriate discount factor(s) using tables.7,0005,000Required:1-a. Determine the present value of net cash flows using the total cost approach. (Negative amounts should be indicated with aminus sign. Round discount factor(s) to 3 decimal place.)

The Net Present Value:The net present value is a popularly used capital budgeting technique that is…

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.)

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter14: Multinational Capital Budgeting

Section: Chapter Questions

Problem 3ST