Palo Alto Corporation is considering purchasing a new delivery truck. The truck has many advantages over the companyAc€?cs current truck (not the least of which is that it runs). The new truck would cost $56,000. Because of the increased capacity, reduced maintenance costs, and increased fuel economy, the new truck is expected to generate cost savings of $7,500. At the end of 8 years the company will sell the truck for an estimated$27,000. 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 assetAc€?cs 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 companyAc€?cs cost of capital is 8%.

(a) Compute the cash payback period and net present value of the proposed investment.

(b) Does the project meet the companyAc€?cs cash payback criteria? Does it meet the net present value criteria for acceptance? Discuss your results.