Question
In: Accounting
Pompeii's Pizza has a delivery car that it uses for pizza deliveries. The transmission needs to...
Pompeii's Pizza has a delivery car that it uses for pizza deliveries. The transmission needs to be replaced and there are several other repairs that need to be done. The car is nearing the end of its life, so the options are to either overhaul the car or replace it with a new car. Pompeii's has put together the following budgetary items:
| Present Car | New Car | |
| Purchase cost new | $30,000 | |
| Transmission and other repairs | $8,500 | |
| Annual cash operating cost | 13,000 | 11,000 |
| Fair market value now | 6,000 | |
| Fair market value in five years | 1,000 | 6,000 |
If Pompeii’s replaces the transmission of the pizza delivery vehicle, they expect to be able to use the vehicle for another 5 years. If they sell the old vehicle and purchase a new vehicle, they will use that vehicle for 5 years and then trade it in for another new pizza delivery vehicle. If they trade for the new delivery vehicle, their operating expenses will decrease because the new vehicle is more gas efficient and the maintenance on a new car is less. This project is analyzed using a discount rate of 10%.
A. Calculate the NPV on both Cars. Round your present value factor to three decimal places and the rest to nearest dollar.
| Present Car | $ |
| New Car | $ |
B. What should Pompeii’s do?
Pompeii’s should .
Solutions
Expert Solution
I hope I've solved to the point. Please feel free to ask any queries. Do give a thumbs up if my answer was satisfactory. Thank you.
ekkarill92 answered 2 years agoRelated Solutions
Pompeii's Pizza has a delivery car that it uses for pizza deliveries. The transmission needs to...
Pompeii's Pizza has a delivery car that it uses for pizza
deliveries. The transmission needs to be replaced and there are
several other repairs that need to be done. The car is nearing the
end of its life, so the options are to either overhaul the car or
replace it with a new car. Pompeii's has put together the following
budgetary items:
Present Car
New Car
Purchase cost new
$32,000
Transmission and other repairs
$8,500
Annual cash operating cost...
A manager of a pizza restaurant has changed the restaurant's delivery process in an effort to...
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A manager of a pizza restaurant has changed the restaurant's delivery process in an effort to...
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21,000 30,000 Remaining book value 11,500 Overhaul needed now 7,000
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Bilboa Freightlines, S.A., of Panama, has a small truck that it uses for intracity deliveries. The...
Bilboa Freightlines, S.A., of Panama, has a small truck that it
uses for intracity deliveries. The truck is worn out and must be
either overhauled or replaced with a new truck. The company has
assembled the following information: Present Truck New Truck
Purchase cost (new) $ 28,000 $ 38,000 Remaining book value $ 15,000
Overhaul needed now $ 14,000 Annual cash operating costs $ 14,500 $
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Bilboa Freightlines, S.A., of Panama, has a small truck that it uses for intracity deliveries. The...
Bilboa Freightlines, S.A., of Panama, has a small truck that it
uses for intracity deliveries. The truck is worn out and must be
either overhauled or replaced with a new truck. The company has
assembled the following information:
Present
Truck
New
Truck
Purchase cost new
$
35,000
$
50,000
Remaining book value
$
25,000
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Overhaul needed now
$
24,000
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Annual cash operating costs
$
18,500
$
18,000
Salvage value-now
$
15,000
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Salvage value-five years from now
$...
Bilboa Freightlines, S.A., of Panama, has a small truck that it uses for intracity deliveries. The...
Bilboa Freightlines, S.A., of Panama, has a small truck that it
uses for intracity deliveries. The truck is worn out and must be
either overhauled or replaced with a new truck. The company has
assembled the following information:
Present
Truck
New
Truck
Purchase cost (new)
$
36,000
$
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Remaining book value
$
23,000
Overhaul needed now
$
22,000
Annual cash operating costs
$
17,500
$
16,000
Salvage value-now
$
12,000
Salvage value-five years from now
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$
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Bilboa Freightlines, S.A., of Panama, has a small truck that it uses for intracity deliveries. The...
Bilboa Freightlines, S.A., of Panama, has a small truck that it
uses for intracity deliveries. The truck is worn out and must be
either overhauled or replaced with a new truck. The company has
assembled the following information:
Present
Truck
New
Truck
Purchase cost (new)
$
25,000
$
30,000
Remaining book value
$
11,000
Overhaul needed now
$
11,000
Annual cash operating costs
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Present
Truck
New
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Purchase cost new
$
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Remaining book value
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Overhaul needed now
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Annual cash operating costs
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Salvage value now
14,000
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Salvage...
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