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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
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Phoniex University
Oct-2001 - Nov-2016
44.   LO.2 & LO.3 (Time line; payback; NPV) Best Bakery is considering the purchase of a new delivery truck to replace an existing unit. The truck would cost $45,000 and would have a life of 7 years with no salvage value. The existing truck could be sold currently for
$4,000, but, if it is kept, it will have a remaining life of 7 years with no salvage value. By purchasing the truck, Best Bakery’s managers would anticipate operating cost savings as follows:
Â
|
Year |
Amount |
|
1 |
$5,900 |
|
2 |
8,100 |
|
3 |
8,300 |
|
4 |
8,000 |
|
5 |
8,000 |
|
6 |
8,300 |
|
7 |
9,200 |
Best Bakery’s cost of capital and capital project evaluation rate is 8 percent.
a.    Construct a time line for the purchase of the truck.
b.   Determine the payback period. (Ignore taxes.)
c.    Calculate the net present value of the truck. (Ignore taxes.)
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