Question

PINTER VERSION BACK NEXT Exercise 13.14 ab Dobbs 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 runs). The new truck would cost $55.728 Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $8,100. At the end of eight years, the company will sell the truck for an estimated $27,500. Traditionally, the company has used a general rule that it should not accept a proposal unless has a payback period that is less than 50% of the asset's estimated useful le Pavel Chepele, a new manager, has suggested that the company should not rely only on the payback approach but should also use the net present value method when evaluating new projects. The company's cost of capital is 8% Calculate the cash payback period and net present value of the proposed investment (ar theme present value is negative, use either a negative in preceding the number eg. 45 o parentheses eg. (45). Round cash payback period to 2 decimal place, .. 12.51. For calculation purposes, use 5 decimal places as displayed in the factor table provided, .. 1.25124 and we present value to decimal places, e.g. 5,275.) Click here to view table Cash payback period Net present value LINK TO TEXT LINK TO TEXT Does the project meet the company's cash payback critena? The project cash payback criteria Does it meet the represent value criteria for acceptance? The project et present value criteria www

Answer 1

Page No o Answers ☺ cash payback period & state presente value Initial investments - $ 56428 Cash flow per year = 68100 Initial investment Cash inflow per year cash payback period - 55728 8100 = 6.88 years 1-(4+80079 1.. cash payback period 3 6.88 years Alet prestvalbane - - 55428 x oder jo + 160 x +21600x stedet for one or =-(55498x1) + (8100 X 5044664) + : ( 27500 X0.54037) - + 24500 fediscount factor . = 8% (n= o to 8 years

- Page No ③ e-55708 + 46548 + 14857 $5674 1. Net present value - $5677 * Does the project meet the company's cash bayback criteria? . For the project meet the company's cash paybacks Coriteria, the cash payback period project is 6.88 years must be less than 50% of estimated life of assets 4 years i. No, the project doesn't meet the company's cash payback Ceriteria Does it meet the net present value criteria for acceptance. nebo presenla value is Yes, Because the project positive ricos $5644