Calculate which alternative is favored, and by how much

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Reference no: EM133346151

7. Bestline Furniture Store has a choice of overhauling its present delivery truck or purchasing a new
one. The following information is available.
						24 points
	Present	New
	Truck	Truck
Purchase cost, new	13,500	19,500			Initial investment
Remaining book value	3,800				Cash savings
Overhaul needed now	2,800				Salvage value
Annual cash operating costs	7,400	4,100			Net present value
Salvage value now	2,500
Salvage value, 5 years from now	900	6,000
				Initial investment
If the company keeps the old delivery truck, it will have to be overhauled immediately
at the cost shown above. With the overhaul it can be made to last				5	years
more. The new truck will also last for		5	years. All investment projects
are evaluated on a basis of a	12%	rate of return.

Required: Calculate (show work) which alternative is favored, and by how much?

Reference no: EM133346151

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