A contractor has to choose one of the following alternatives in performing earthmoving contracts: A. Buy a heavy-duty truck for $35,000. Salvage value is expected to be $8000 at the end of the vehicle’s 7-year depreciable life. Maintenance is $2500 per year. Daily operating expenses are $200. B. Hire a similar unit for $550 per day. Based on a 10% after-tax rate of return, how many days per year must the truck be used to justify its purchase? Base your calculations on straight-line depreciation and a 28% income tax rate.
A contractor has to choose one of the following alternatives in performing earthmoving contracts: A. Buy a heavy-duty truck for $35,000. Salvage value is expected to be $8000 at the end of the vehicle’s 7-year
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A contractor has to choose one of the following alternatives in
performing earthmoving contracts:
A. Buy a heavy-duty truck for $35,000. Salvage value is expected to be
$8000 at the end of the vehicle’s 7-year depreciable life. Maintenance is
$2500 per year. Daily operating expenses are $200.
B. Hire a similar unit for $550 per day.
Based on a 10% after-tax rate of return, how many days per year must
the truck be used to justify its purchase? Base your calculations on
straight-line depreciation and a 28% income tax rate.
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