The CFO of a consulting engineering firm is deciding between purchasing Ford Explorers and Toyota 4Runners for company principals. The purchase price for the Ford Explorer will be $29,750. Annual maintenance costs for the Explorer are expected to be $775 per year more than that of the 4Runner. The purchase price for Toyota 4Runners is 35,500 the trade-in values after 3 years are estimated to be 50% of the first cost for the Explorer and 60% for the 4Runner.

(a) What is the incremental ROR between the two vehicles?

(b) Provided the firm’s MARR is 15% per year, which vehicle should it buy?

Answer rating: 100% (QA)

a In incremental rate of return method the alternative with larger investment is ... View the full answer