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# p12-4a - Name Date Instructor Course rd Managerial...

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FileName: 73f95dce0bb0e6affc20baee1d3a6047a1870379.xls, Tab: Problem P12-4A, Page 1 of 2, 12/28/2011, 19:03:26 Name: Date: Instructor: Course: \$60,000 price tag for a new truck would represent a major expenditure. Jenna Lind, owner of the garage, has compiled the following estimates in trying to determine whether the tow truck should be purchased. Initial cost \$60,000 Estimated useful life 8 years Net annual cash flows from towing \$8,000 Overhaul costs (end of year 4) \$5,000 Salvage value \$15,000 Jenna's good friend, Reid Shaw, stopped by. He is trying to convince Jenna that the tow truck will have other benefits that Jenna hasn't even considered. First, he says, cars that need towing need to be fixed. Thus, when Jenna tows them to her facility her repair revenues will increase. Second, he notes that the tow truck could have a plow attached to it, thus saving Jenna the cost of plowing her parking lot. (Reid will give her a used blade for free if Jenna will plow Reid's driveway.) Third, he notes that the truck will generate goodwill; people who are rescued by Jenna's tow truck will feel grateful and might be more inclined to use her service station in the future, or buy gas there. Fourth, the tow truck will have "Prestige Auto Care" on its doors, hood, and back tailgate - a form of free advertising wherever the tow truck goes.

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