You are trying to pick the least-expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $14,000 to purchase and which will have OCF of -$1,200 annually throughout the vehicle’s expected life of three years as a delivery vehicle; and the Toyota Prius, which will cost $20,000 to purchase and which will have OCF of -$650 annually throughout that vehicle’s expected four-year life. Both cars will be worthless at the end of their life. If you intend to replace whichever type of car you choose with the same thing when its life runs out, again and again out into the foreseeable future, and if your business has a cost of capital of 12 percent, which one should you choose?
Answer to relevant QuestionsYou are evaluating two different cookie-baking ovens. The Pillsbury 707 costs $57,000, has a five-year life, and has an annual OCF (after tax) of -$10,000 per year. The Keebler CookieMunster costs $90,000, has a seven-year ...You have been asked by the president of your company to evaluate the proposed acquisition of a new special-purpose truck for $60,000. The truck falls into the MACRS three-year class, and it will be sold after three years ...Compute the NPV for Project M and accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 8percent.Compute the IRR statistic for project F and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 12percent.Use the IRR decision rule to evaluate this project; should it be accepted or rejected? The IRR for this project will be the solutionto:
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