Replacement decision. Net present value

Replacement decision. Redwing Freightlines, Inc., has a small truck that it uses for intracity deliveries. The truck is in bad repair and must be either overhauled or replaced with a new truck. The company has assembled the following information: Present truck 21,000 11,500 New trudk 30,000 Purchase cost new Remaining book value Overhaul needed now Annual cash operating costs Salvage value-now Salvage value-eight years from now 10,000 9,000 1,000 6,500 4,000 If the company keeps and overhauls its present delivery truck, then the truck will be useable for eight more years. If a new truck is purchased, it will be used for eight 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 on a basis of a 16 percent before-tax rate of return. REQUIRED (ignore income taxes): (1) Should Redwing Freightlines, Inc., keep the old truck or purchase the new one? Use the total-cost approach to net present value in making your decision. Round to the nearest whole dollar. (2) Redo (1) above, this time using the incremental-cost approach