Linkin Corporation is considering purchasing a new deliverytruck. The truck has many advantages over the company’s currenttruck (not the least of which is that it runs). The new truck wouldcost $55,200. Because of the increased capacity, reducedmaintenance costs, and increased fuel economy, the new truck isexpected to generate cost savings of $8,600. At the end of 8 yearsthe company will sell the truck for an estimated $28,900.Traditionally the company has used a rule of thumb that a proposalshould not be accepted unless it has a payback period that is lessthan 50% of the asset’s estimated useful life. Larry Newton, a newmanager, has suggested that the company should not rely solely onthe payback approach, but should also employ the net present valuemethod when evaluating new projects. The company’s cost of capitalis 8%.
Click here to view PV table.
(a)
Compute the cash payback period and net present value of theproposed investment. (If the net present value isnegative, use either a negative sign preceding the number eg -45 orparentheses eg (45). Round answer for present value to 0 decimalplaces, e.g. 125. Round answer for Payback period to 1 decimalplace, e.g. 10.5. For calculation purposes, use 5 decimal places asdisplayed in the factor table provided.)
Cash payback period ?
Net Present Value ?
