CALCULATOR HESSAGE MY INSTRUCTOR STANDARD VIEW PRINTER VERSION. BACK IN. Exercis

Question

CALCULATOR HESSAGE MY INSTRUCTOR STANDARD VIEW PRINTER VERSION. BACK IN. Exercise 26-1 Palo Alto Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company's current truck (not the least of which is that it runs). The new truck would cost $57,240. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $7,570. At the end of 8 years the company will sell the truck for an estimated $28.080. Traditionally the compeny hes used a rule of thumb that a proposal should not be accepted unless it has a poybeck period that is less then 50% of the ascet's estimated useful life. Larry Newton, a new manager, has suggested that the company should not rely solely on the pay back approach, but should also employ the not present value method when evaluating new projects. The company's cost of capital is 84%. (Rafter the below table). Compute the cash paybod period and not present value of the proposed investment. (If the net present value is negative, use either a negative sign preceding the number og -15 or parentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125. Round answer for Payback period to 1 decimal place, e.g. 10.S. Rownd Discount Factor to 5 decimal places, e.g. O.1 7986.) years Cash payback period Net present values LINK TO TEXT LINK TO TEXT Does the project mect the company's cash poybeck criteria? Does it meet the net present value criteria for acceptance?

Explanation / Answer

Cash payback period = 57240/7570= 7.6 Present value of cost savings 43502 =7570*5.74664 Present value of salvage value 15171 =28080*0.54027 Total present value 58673 Initial investment 57240 Net present value 1433 Not acceptable in payback criteria Acceptable in net present value criteria

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