Question: Walt Wallace Construction Enterprises is investigating the purchase of a new dump truck. Interest is 9%. The cash flows for two Likely models are as

Walt Wallace Construction Enterprises is investigating the purchase of a new dump truck. Interest is 9%. The cash flows for two Likely models are as follows

Annual

First Operating Annual Salvage

Model Cost Cost income Value Life

A $50,000 $2000 $9,000 $10,000 10 yr

B $80,000 $1000 $12,000 $30,000 10 yr

(a) Using present worth analysis, which truck should the firm buy, and why?

(b) Before the construction company can close the deal, the dealer sells out of Model B and cannot get any more. What should the firm do now and why?

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