Allan Ltd is considering the purchase of a new truck which costs $14,340. The truck is expected to save $3,600 in operating costs annually for the next 7 years. How low can the annual cost savings be and still provide a 15% return? Ignore income taxes.

Question

Quizplus · Accepted Answer

To find the minimum annual savings that provide a 15% return, calculate the annuity factor for 7 years at 15% and divide the truck's cost by this factor. The annuity factor is approximately 4.1604, so $14,340 / 4.1604 ≈ $3,441.

Allan Ltd Is Considering the Purchase of a New Truck