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Check my work Bilboa Freightlines, S.A., of Panama, has a small truck that it uses for intracity deliveries. The truck is wor

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Answer #1

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Year
0 1 2 3 4 5
1 Keep the old truck
Overhaul needed now -23000
Annual operating costs -22000 -22000 -22000 -22000 -22000
Salvage value (old)(after 5 years) 20000
Total cash flows -23000 -22000 -22000 -22000 -22000 -2000
Discount factor (i=7%) 1 0.935 0.873 0.816 0.763 0.713
Present Value -23000 -20570 -19206 -17952 -16786 -1426
Net present value -98940
2 Purchase the new truck
Purchase new truck -36000
Salvage value (old)(before 5 Years) 5000
Annual operating costs -19500 -19500 -19500 -19500 -19500
Salvage value (new) 12000
Total cash flows -36000 -19500 -19500 -19500 -19500 -2500
Discount factor (i=7%) 1 0.935 0.873 0.816 0.763 0.713
Present Value -36000 -18233 -17024 -15912 -14879 -1782.5
Net present value -103829
3. Bilboa should keep the old truck since its net present value is higher than the net present value .
of purchasing the new truck.
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