Problem 14-28 (Algo) Net Present Value Analysis [LO14-2]Bilboa Freightlines, S.A., of Panama, uses a truck for intracity deliveries that has worn out and must be overhauled or replaced. Thecompany assembled the following information:Purchase cost (new)Remaining book valueOverhaul needed nowAnnual cash operating costsSalvage value-nowSalvage value-five years from nowPresentTruckNew Truck$ 28,000$ 38,000$ 15,000$ 14,000$ 14,500$ 13,000$ 10,000$ 9,000$12,000If the company overhauls its present delivery truck, then it will be usable for five more years. If a new truck is purchased, it will be usedfor five years and then traded in for another truck. The new truck would be diesel-operated, resulting in lower annual operating costs,as shown above.The company computes depreciation on a straight-line basis and uses a 13% 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?3. Should Bilboa Freightlines keep the old truck or purchase the new one?

2. Net present value of the "purchase the new truck" alternative:The cash flows for this alternative…

Answered: Problem 14-28 (Algo) Net Present Value…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Exercise 14A-4 (Algo) Basic Present Value Concepts [LO14-7] Fraser Company will need a new warehouse in eighteen years. The warehouse will cost $410,000 to build. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: What lump-sum amount should the company invest now to have the $410,000 available at the end of the eighteen-year period? Assume that the company can invest money at: (Round your final answer to the nearest whole dollar amount.)
Net Present Value Analysis 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: 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 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” alternative? Round to the nearest whole dollar. 3. Should Bilboa Freightlines keep the…
genow.com/ilm/takeAssignment/takeAssignmentMain.do?inprogress-true stom Order ♥ e < eBook costs. Gilroy Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,200. The freight and installation costs for the equipment are $650. If purchased, annual repairs and maintenance are estimated to be $430 per year over the 4-year useful life of the equipment. Alternatively, Gilroy can lease the equipment from a domestic supplier for $1,580 per year for 4 years, with no additional Unit costs: Purchase price Freight and installation Repair and maintenance (4 years) Lease (4 years) Prepare a differential analysis dated December 11 to determine whether Gilroy should Lease Equipment (Alternative 1) or Buy Equipment (Alternative 2). Hint: This is a lease-or-buy decision, which must be analyzed from the perspective of the equipment user, as opposed to the equipment owner. If an amount is zero, enter "0". For those boxes in which you must enter…
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Net Present Value Analysis [L014-2] Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 18%. After careful study, Oakmont estimated the following costs and revenues for the new product: \table[[Cost of equipment needed,$270,000
A company is considering two alternatives with regards to equipment which it needs. The alternatives are as follows: Alternative A:PurchaseCost of Equipment 700,581Salvage Value 105,896Daily operating cost 534Economic life, years 10 Alternative B: Rental at 1,539 per day. At 18% interest, how many days per year must the equipment be in use if Alternative A is to be chosen.
1 Problem 14-18 (Algo) Net Present Value Analysis [LO14-2] Print Oakmont Company has an opportunity to manufacture and sell a new product for a four-year period. The company's discount rate is 17% and it estimated the following costs and revenues for the new product: Cost of equipment needed Working capital needed Overhaul of the equipment in two years Salvage value of the equipment in four years. Annual revenues and costs: Sales revenues Variable expenses Fixed out-of-pocket operating costs $ 190,000 $ 69,000 $ 6,000 $ 16,500 $ 340,000 $ 165,000 $ 79,000 When the project concludes in four years, the working capital will be released for investment elsewhere within the company. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. Required: Calculate the net present value of this investment opportunity. Note: Round your final answer to the nearest whole dollar amount. Net present value
A B Initial investment outlay ($) 200,000 275,000 Freight Charges ($) 20,000 30,000 Set Up charges ($) 5,000 7,000 Economic Life (Years) 10 10 Liquidation value at end of economic life ($) 12,000 17,000 Other fixed costs ($) 4,000 20,000 Production and sales volume (units) 9,000 12,000 Sales Price ($) 15 15 Variable Cost ($) 2.45 2.00 Rate of interest (%) 6 6 Ascertain the preferred project using:a. The profit comparison method. b. The average rate of return method. c. The static payback method d. Re-evaluate the projects using the Net Present Value. Are the results of the Project selection process the same? If different, what reasons can you offer?
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ok at ances Bilboa Freightlines, S.A. 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 U.S. dollar as its currency): Purchase cost new Remaining book value Overhaul needed now i Annual cash operating costs Salvage value now Salvage value eight years from now Present Truck $ 34,000 19,000 7,000 Purchase the new truck Keep the old truck 10,000 12,000 2,000 Present Value of Net Cash Flows New Truck $46,000 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. The company computes depreciation on a straight-line basis. All investment…
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A company is considering two alternatives with regards to equipment which it needs. The alternatives are as follows: Alternative A: Purchase Cost of Equipment 703,668700,000 Salvage Value 100,454100,000 Daily operating cost 501500 Economic life, years 10 Alternative B: Rental at 1,5751,500 per day. At 18% interest, how many days per year must the equipment be in use if Alternative A is to be chosen.

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