A business uses delivery trucks and is considering purchasing model A or model Model A costs $55,000, costs $3500 a year to maintain and lasts 5 years then is junked while model B costs $35,000, costs $1300 a year and lasts only 3 yearsCalculate the equivalent annual annuity for each model and identify the best choice all else being equal? Use a cost of capital of 5% per year.
A business uses delivery trucks and is considering purchasing model A or model Model A costs $55,000, costs $3500 a year to maintain and lasts 5 years then is junked while model B costs $35,000, costs $1300 a year and lasts only 3 yearsCalculate the equivalent annual annuity for each model and identify the best choice all else being equal? Use a cost of capital of 5% per year.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A business uses delivery trucks and is considering purchasing model A or model Model A costs $55,000, costs $3500 a year to maintain and lasts 5 years then is junked while model B costs $35,000, costs $1300 a year and lasts only 3 yearsCalculate the equivalent annual annuity for each model and identify the best choice all else being equal? Use a cost of capital of 5% per year.
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Step 1 Brief Introduction (For your reference)
VIEWStep 2 calculation of NPV of Model A
VIEWStep 3 calculation of NPV of Model B
VIEWStep 4 Calculation of the equivalent annual annuity of Model A
VIEWStep 5 Calculation of the equivalent annual annuity of Model B
VIEWStep 6 conclusion about which model to choose
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