Palo 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 is that it runs). The new truck would cost $55,950. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $8,560. At the end of 8 years the company will sell the truck for an estimated $27,610. Traditionally the company has used a rule of thumb that a proposal should not be accepted unless it has a payback period that is less than 50% of the asset’s estimated useful life. Larry Newton, a new manager, has suggested that the company should not rely solely on the payback approach, but should also employ the net present value method when evaluating new projects. The company’s cost of capital is 8%.(Refer the below table). Compute the cash payback period and net present value of the proposed investment. (If the netpresent value is negative, use either a negative sign preceding the number eg -45 orparentheses eg (45). Round answer for present value to 0 decimal places, e.g. 125. Roundanswer for Payback period to 1 decimal place, e.g. 10.5. Round Discount Factor to 5 decimalplaces, e.g. 0.17986.)Cash payback periodNet present value years$ Doug’s Custom Construction Company is considering three new projects, each requiring an equipment investment of $23,320. Each project will last for 3 years and produce the following net annual cash flows.Year AA […]
