Delta Dawn's Bakery is considering purchasing a new van to deliver bread. The van will cost ($
Question:
Delta Dawn's Bakery is considering purchasing a new van to deliver bread. The van will cost \(\$ 18,000\). Two-thirds \((\$ 12,000)\) of this cost will be borrowed. The loan is to be repaid with four equal annual payments (first payment at \(t=1\) ) based on an interest rate of 4 percent/year. It is anticipated that the van will be used for 6 years and then sold for a salvage value of \(\$ 500\). Annual operating and maintenance expenses for the van over the 6-year life are estimated to be \(\$ 700\) per year. If the van is purchased, Delta will realize a cost savings of \(\$ 3,800\) per year. Delta uses a MARR of 6 percent/year. Based on a present worth analysis, is the purchase of the van economically attractive?
Step by Step Answer:
Principles Of Engineering Economic Analysis
ISBN: 9781118163832
6th Edition
Authors: John A. White, Kenneth E. Case, David B. Pratt