The cost accountant of a large truck fleet is evaluating options for dealing with a large volume
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The company has two alternatives. A tire dealer has offered to fix all the company’s flat tires for a fixed rate of $36 per tire over a three-year period. The other alternative is for the company to go into the tire repair business for themselves. This option is expected to require an investment in equipment of $200,000, with a salvage value of $50,000 after three years. It would require an overhead expense of $40,000 per year in the first year, $45,000 the second year, and $50,000 the third year. The variable cost for fixing a flat tire is $12 per tire for the three-year period of analysis. Compare the net present costs using a discount rate of 8% over three years for each of these three options under conditions of tire growth rate ranging from 5% to 15% per year in increments of 1%. What is the best option under each scenario? What risk factors should be considered? Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Dealer
A dealer in the securities market is an individual or firm who stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price). A dealer seeks to profit from the spread between the... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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Statistics Data Analysis And Decision Modeling
ISBN: 9780132744287
5th Edition
Authors: James R. Evans
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