luscom WileyPLUS Chegg Study Guided Solutions and Study Hel

lus.com WileyPLUS Chegg Study | Guided Solutions and Study Help | Chegg.com WileyPLUS: MywilleyPLUS I Help I Contact Us I Log Out FINANCIAL AND MANAGERIAL ACCOUNTING () Kimmel, Accounting: Tools for Business Decision Making, Se Assignment Gradebook ORION CALCULATOR | FULL SCREEN PR?NTER VERSON BACK | NEXT xercise 24-1 alo Alto Corporation is considering purchasing a new delivery truck. The truck has many advantages over the company\'s current truck (not the least of which s that it runs). The new truck would cost $56,110. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck s expected to generate cost savings of $7,530. At the end of 8 years the company will sell the truck for an estimated $27,850. Tracitionally the company has ised a rule of thumb that a proposal should not be accepted unless it has a payback period that is less than S0% of the asset\'s estimated useful e any 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 8%. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) [2 Your answer is partially correct. Try again. 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 o decimal places, e.g. 125. Round answer for Payback period to 1 decimal place, e.g. 10.5.) Cash payback period Net present value 7.5 rs 56000

Solution

b. Year Value Flows Present Factor @ 8% Present Value Cost Savings 1 - 8 $    7,530.00 PVAF (8%, 8) 5.74664 $ 43,272 Salvage Value 8 $ 27,850.00 PVIF (8%, 8) 0.54027 $ 15,047 Total Present Value $ 58,319 Less : Initial Cash Flow $ 56,110 Net Present Value $   2,209 PVAF (8%, 8) = Present Value Annuity Factor at 8% for years PVIF (8%, 8) = Present Value Interest Factor at 8% at 8th year.