Problem 14-28 (Algo) Net Present Value Analysis [LO14-2]

Bilboa Freightlines, S.A., of Panama, uses a truck for intracity deliveries that has worn out and must be overhauled or replaced. The company assembled the following information:

	Present Truck	New Truck
Purchase cost (new)	$ 25,000	$ 31,000
Remaining book value	$ 12,000	-
Overhaul needed now	$ 8,000	-
Annual cash operating costs	$ 13,000	$ 10,500
Salvage value-now	$ 6,000	-
Salvage value-five years from now	$ 5,000	$ 6,000

If the company overhauls its present delivery truck, then it will be usable for five more years. If a new truck is purchased, it will be used for five years and then traded in for another truck. The new truck would be diesel-operated, resulting in lower annual operating costs, as shown above.

The company computes depreciation on a straight-line basis and uses a 14% discount rate.

Click here to view Exercise 14-14 (Algo) Comparison of Projects Using Net Present Value [LO14-2]

Labeau Products, Limited, of Perth, Australia, has $12,000 to invest in one of the following two projects:

	Project X	Project Y
Investment required	$ 12,000		$ 12,000
Annual cash inflows	$ 5,000
Single cash inflow at the end of 6 years			$ 30,000
Life of the project	6	years	6	years

The companys discount rate is 18%.

Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.

Required:

1. Compute the net present value of Project X.
2. Compute the net present value of Project Y.
3. Which project should the company accept? and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables.

Required:

1. What is the net present value of the keep the old truck alternative?
2. What is the net present value of the purchase the new truck alternative?
3. Should Bilboa Freightlines keep the old truck or purchase the new one?

Complete this question by entering your answers in the tabs below. What is the net present value of the "purchase the new truck" alternative? Note: Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount. Complete this question by entering your answers in the tabs below. What is the net present value of the "keep the old truck" alternative? Note: Enter negative amount with a minus sign. Round your final answer to the nearest whole dollar amount. Complete this question by entering your answers in the tabs below. Should Bilboa Freightlines keep the old truck or purchase the new one