Austin Audio Systems is considering the purchase of a new delivery truck to replace an existing unit. The truck would cost $ 45,000 and would have a life of seven years with no salvage value. The existing truck could be sold currently for $ 4,000, but if it is kept, it will have a remaining life of seven years with no salvage value. By purchasing the truck, Austin Audio Systems’ managers would anticipate operating cost savings as follows:
Year Amount
1 ....... $ 5,900
2 ....... 8,100
3 ....... 8,300
4 ....... 8,000
5 ....... 8,000
6 ....... 8,300
7 ....... 9,200
Austin Audio Systems’ cost of capital and capital project evaluation rate is 8 percent.
a. Construct a time line for the purchase of the truck.
b. Determine the payback period. (Ignore taxes.) (Round time to one decimal point.)
c. Calculate the net present value of the truck. (Ignore taxes.)

  • CreatedJune 03, 2014
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