Reference no: EM132956229

Question - Trucking Inc. is considering replacing one of its truck. The truck was purchased for $72,400. The truck has a current book value of $48,900 and a remaining useful life of four years. Its current disposal price is $54,500; in four years its terminal disposal price is expected to be $7,200. The annual cash operating costs are expected to be $45,000 for each of the next two years and $61,000 in year 3 and 4.

Trucking Inc. is considering the purchase of a new truck for $72,500. The new truck would have a useful life of four years. Annual cash operating costs for the new truck are expected to be $41,000 for each of the next three years and $54,000 in year 4. The terminal disposal price of the new truck would be $ 6,400 in four years.

Trucking Inc. amortizes all its trucks using the straight-line amortization method.

Trucking Inc. uses a rate of return of 8% to evaluate its capital budgeting decisions.

Refer to the "Present value and t-distribution tables"

Required: You must provide all the detailed supporting calculations.

a. Using the net present value method, determine if Trucking Inc. should purchase the new truck? You must provide the supporting calculations using the Present Value (Annuity)Tables.     

b. Compute the payback period for Trucking Inc. if it purchases the new truck.