PROBLEM 12-28 Net Present Value Analysis LO12-20 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: Purchase cost (new) Remaining book value Overhaul needed now Annual cash operating costs Salvage value-now Salvage value-five years from now Present Truck New Truck $21,000 $30,000 $ 11,500 $ 7,000 $10,000 $6,500 $9,000 $1,000 $4,000 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. Bilboa Freightlines, S.A. Incremental Cost Approach Net Present Value Calculation Amount of Year(s) Cash Flows Item PV $ (23,000) Incremental investment - in favor of old truck Additional annual cash operating costs Lost salvage value in five years Lost salvage value for old truck now Oor oro (23,000) $ 3,500 1,000 9,000 9,000 Logic IF statement in this cell A32