Calculate the net present value, ignoring the additional benefits described by Rick. $($If the net present value is negative, use either a negative sign preceding the number e$.$g$.-45$ or parentheses e$.$g$.(45).$ Round answer to $0$ decimal places, e$.$g$.125.$ For calculation purposes, use $5$ decimal places as displayed in the factor table provided.$)$

Net present value

$\backslash$$

Should the tow truck be purchased?

The tow truck be purchased. estimates in trying to determine whether the tow truck should be purchased.

Oriole's good friend, Rick Ryan, stopped by$.$ He is trying to convince Oriole that the tow truck will have other benefits that Oriole hasn't even considered. First, he says, cars that need towing need to be fixed. Thus, when Oriole tows them to her facility, her repair revenues will increase. Second, he notes that the tow truck could have a plow mounted on it$,$ thus saving Oriole the cost of plowing her parking lot. $($Rick will give her a used plow blade for free if Oriole will plow Rick's driveway.$)$ Third, he notes that the truck will generate goodwill; people who are rescued by Oriole's tow truck will feel grateful and might be more inclined to use her service station in the future or buy gas there. Fourth, the tow truck will have "Oriole's Auto Care" on its doors, hood, and back tailgate$-$a form of free advertising wherever the tow truck goes. Rick estimates that, at a minimum, these benefits would be worth the following.

The company's cost of capital is $\backslash (9\backslash \%\backslash ).$

Click here to view PV table. Oriole 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 $\backslash (\backslash$$ $54,750\backslash ).$ Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $\backslash (\backslash$$ $7,500\backslash ).$ At the end of $8$ years, the company will sell the truck for an estimated $\backslash (\backslash$$ $27,800\backslash ).$ Traditionally the company has used a rule of thumb that a proposal should not be accepted unless it has a payback period that is less than $\backslash (50\backslash \%\backslash )$ of the asset's estimated useful life. Larry Newton, a new manager, has suggested that the company should not rely solely on the payback approach, but should also employ the net present value method when evaluating new projects. The company's cost of capital is $\backslash (8\backslash \%\backslash ).$

Click here to view PV table.

$($a$)$

Compute the cash payback period and net present value of the proposed investment. $($If the net present value is negative, use either a negative sign preceding the number eg $-45$ 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$.10\mathrm{.}5.$ For calculation purposes, use $5$ decimal places as displayed in the factor table provided.$)$

Cash payback period

years

Net present value

$($b$)$

Does the project meet the company's cash payback criteria?

Does it meet the net present value criteria for acceptance? Sunland Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do$.$ Estimates regarding each machine are provided here.

Click here to view PV table.

Calculate the net present value and profitability index of each machine. Assume a $\backslash (9\backslash \%\backslash )$ discount rate. $($If the net present value is negative, use either a negative sign preceding the number eg $-45$ or parentheses eg $(45).$ Round answer for present value to $0$ decimal places, e$.$g$.125$ and profitability index to $2$ decimal places, e$.$g$.10\mathrm{.}50.$ For calculation purposes, use $5$ decimal places as displayed in the factor table provided.$)$

Net present value

Profitability index

Which machine should be purchased?

should be purchased.