Your company needs to purchase a truck and has narrowed the selection to two pieces of equipment.

Question:

Your company needs to purchase a truck and has narrowed the selection to two pieces of equipment. The first truck costs $70,000 and has an hourly operation cost of $13.00 and a useful life of six years. At the end of six years its salvage value is $10,000. The second truck costs $40,000 and has an hourly operation cost of $18.00 and has a useful life of four years. At the end of four years its salvage value is $5,000. The operator cost is $22.00 per hour. The revenue from either truck is $55.00 per hour. Using 1,500 billable hours per year and a MARR of 18%, calculate the net present value for both trucks. Assume that each option is repurchased until their useful lives end in the same year. Which truck should your company choose?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
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...
MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question
Question Posted: