1.Wrigley’s Wrecker Service is considering the purchase of a specialized tow truck for its smallFeet
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ACCT346 Week 7 Homework AssignmentQues±on 1.Wrigley’s Wrecker Service is considering the purchase of a specialized tow truck for its smallFeet. This new piece of equipment will cost $100,000 and should be serviceable for 10 years, with anexpected residual value of $20,000 at the end of its service life. Wrigley’s believes this specialized towtruck will grow some new business by enabling the company to respond to extra heavy duty towing jobson the nearby interstate highway, and it’s es±mated this will add another $40,000 to annual net cashFow. The table below summarizes the per±nent data suppor±ng the analysis for this acquisi±on.Investment in new tow truck$ 100,000Useful life10 yearsEs±mated annual netcash inFows for next 10 years$ 40,000Residual value of equipment$ 20,000Deprecia±on methodstraight-lineRequired rate of return10%Part A.Calculate thepayback periodfor this investment.Part B.Calculate theaccountng raTe of reTurnfor this investment.Ques±on 2.Wally White is considering the purchase of a new automa±c car wash system that could beinstalled on an open, unused sec±on of the parking lot of his drug store business. The new system willcost $40,000, and with an 8-year useful life will have an es±mated residual value of $10,000. It’s alsoes±mated that this car wash unit will generate net cash inFows of $12,000 per year over its 8-year life. IfWhite requires a 10% return on his money, what is the net present value (NPV) of this project?
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