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A Volvo truck can be acquired for $50,000 today and is expected to have a life of four years with savings of $15,000 each year. A $5,000 maintenance package is expected to be purchased at the beginning of year three, and the machine can be sold for $10,000 after the four years. A Freightliner truck retails for $40,000 and is forecasted to save $13,000 in labour and materials each year. A $2,000 maintenance procedure is needed at the beginning of both years three and four. The salvage value of the machine is estimated at $5,750.  The cost of capital is 12%.  1. What is the present value of each brand?  Volvo:  Freightliner:  2. Which brand should you purchase?

A Volvo truck can be acquired for $50,000 today and is expected to have a life of four years with savings of $15,000 each year. A $5,000 maintenance package is expected to be purchased at the beginning of year three, and the machine can be sold for $10,000 after the four years. A Freightliner truck retails for $40,000 and is forecasted to save $13,000 in labour and materials each year. A $2,000 maintenance procedure is needed at the beginning of both years three and four. The salvage value of the machine is estimated at $5,750.  The cost of capital is 12%.  1. What is the present value of each brand?  Volvo:  Freightliner:  2. Which brand should you purchase?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 5P
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A Volvo truck can be acquired for $50,000 today and is expected to have a life of four years with savings of $15,000 each year. A $5,000 maintenance package is expected to be purchased at the beginning of year three, and the machine can be sold for $10,000 after the four years.

A Freightliner truck retails for $40,000 and is forecasted to save $13,000 in labour and materials each year. A $2,000 maintenance procedure is needed at the beginning of both years three and four. The salvage value of the machine is estimated at $5,750.

 The cost of capital is 12%. 

1. What is the present value of each brand? 

Volvo: 

Freightliner: 

2. Which brand should you purchase? 

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