The Speedy-Delivery Company has two options for its delivery truck. The first option is to purchase a new truck for $14,000. The new truck will have a useful life of 6 years and a residual value of $2000. Operating costs for the new truck will be $200. The second option is to overhaul its existing truck. The cost of the overhaul will be $8000. The overhauled truck will have a useful life of 6 years and a residual value of $0. Operating costs for the overhauled truck will be $800. Using Speedy's discount rate of 4%, which option is better and by what amount? Present Value of $1
Present Value of Annuity of $1
A) Better to overhaul by $1275
B) Better to purchase new by $1275
C) Better to overhaul by $18,855
D) Better to purchase new by $18,855
Correct Answer:
Verified
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