Deutsche Transport can lease a truck for four years at a cost of €41,000 annually. It can instead buy a truck at a cost of €91,000, with annual maintenance expenses of €21,000. The truck will be sold at the end of four years for €26,000. Ignore taxes. a. What is the equivalent annual cost of buying and maintaining the truck if the discount rate is 10%? Note: Do not round intermediate calculations. Enter your answer in euros. Round your answer to the nearest whole number. b. Which is the better option: leasing or buying? a. Equivalent annual cost b. Better option € 41,000 Leasing

Deutsche Transport can lease a truck for four years at a cost of €41,000 annually. It can instead buy a truck at a cost of €91,000, with annual maintenance expenses of €21,000. The truck will be sold at the end of four years for €26,000. Ignore taxes. a. What is the equivalent annual cost of buying and maintaining the truck if the discount rate is 10%? Note: Do not round intermediate calculations. Enter your answer in euros. Round your answer to the nearest whole number. b. Which is the better option: leasing or buying? a. Equivalent annual cost b. Better option € 41,000 Leasing

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Q: The Prescott Welding Company needs to acquire a new lift truck for transporting its final product to…

A: Present worth refers to the discounted value of all future cash flows .

Q: Bailey, Inc., is considering buying a new gang punch that would allow them to produce circuit boards…

A: Present worth is a financial concept that refers to the value today of a future stream of cash…

Q: In 2018, Kendall Ford, an automobile dealership, spent $20,000 on a new car lift for its repair…

A: Given the January 1, 2018 is the starting of the year. It has the opening stock in the balance sheet…

Q: 1. You have been asked to assess a proposed project to buy a new automated assembly machine that…

A: NPV stands for Net Present Value. It is a financial measure that calculates the difference between…

Q: Problem 9-09 If a firm has sales of $24,058,000 a year, and the average collection period for the…

Q: 1. You have been asked to assess a proposed project to buy a new automated assembly machine that…

A: NPV (Net Present Value) is a financial measure used in economics to evaluate the profitability of an…

Q: Barbara Thompson is considering the purchase of a piece of business rental property containing…

A: Given information: Initial investment on a property is $350,000. An annual receipt as rent is…

Q: emitting (LED) light req years, make financial sense? Suppose a typical 60-watt incandescent light…

A: Assume, Break-even cost is C.Equated annua l cost function of 60watt bu lb…

Q: Bosco, Inc. has a beta coefficient of 1.5 and a required rate of return of 17%. The market risk…

A: The required rate of return (RRR) is the minimum amount of profit (return) an investor will seek or…

Q: 1. Specialization and productio Suppose France produces only tablets and smartphones. The resources…

A: Answers 1.Remain constant Suppose France produces only tablets and smartphones. The resources…

Q: Ten years ago, I purchased a bond for $1,350. This bond has a 25-year maturity, a $1,000 par value,…

A: Formula for calculating the current market price of a bond is given below: P=F1+λmn-Cλ1-11+λmnwhere…

Q: For the final year in this graph, 2028, you would pronounce the cash flow from operating activities…

A: The cash flow is measured in thousands. The cash flow in 2028 in the graph is $24,610 It means it…

Q: J&M Manufacturing plans on purchasing a new assembly machine for $32,000 to automate one of its…

A: The objective of this question is to determine the payback period and the discounted payback period…

Q: A program to improve a ferry system by adding new technology has much promise. The new system will…

A: Net present value (NPV) will be calculated as difference among the present value (PV) of inflows of…

Q: A project has an upfront cost (1-0) of $10,000, and it produces annual FCF of $3,000/year from 1-1…

A: Given data Upfront cost=10000 Annual cash inflow=3000 per year Inflation for cash outflow=4%…

Q: Graham worked as a real estate agent for Piedmont Properties for 15 years. Her annual income is…

A: All part solved below,

Q: What would the correct risk premium on 10-year municipal bond with yield of 2.5%, given that 10-year…

A: Yield on treasury bond = 3 % Tax rate = 30 % Municipal bond yield = 2.5 % Municipal bond are tax…

Q: A home is being sold for $168,250, and the settlement is scheduled for June 28. The earnest money…

A: In real estate economics, proration refers to the fair allocation of financial obligations and…

Q: G&M Motors is currently an all equity financed firm. It expects to generate EBIT of $30 million over…

A: The first step in solving this problem is to calculate the current earnings per share (EPS) and the…

Q: Suppose a company had an initial investment of $40,000. The cash flow for the next five years are…

A: The discounted payback period is a capital budgeting method that calculates the amount of time…

Question

Deutsche Transport can lease a truck for four years at a cost of €41,000 annually. It can instead buy a truck at a cost of €91,000, with
annual maintenance expenses of €21,000. The truck will be sold at the end of four years for €26,000. Ignore taxes.
a. What is the equivalent annual cost of buying and maintaining the truck if the discount rate is 10%?
Note: Do not round intermediate calculations. Enter your answer in euros. Round your answer to the nearest whole number.
b. Which is the better option: leasing or buying?
a. Equivalent annual cost
b. Better option
€
41,000
Leasing

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Define Equivalent annual cost

VIEW

Step 2: Calculation of EAC and choosing better option

VIEW

Solution

VIEW

Step by step

Solved in 3 steps with 2 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

The mine that will last for 20 years gives an income of P 60,000 per year. If the investor desires 8% yield on his investment and will accumulate a capital replacement fund at 5%.. Find the value that the investor must pay for the mine. Show your solution.
After Hurricane Katrina there was a need to replace outdated hydraulic flood control pumps in New Orleans. These old pumps are powered by pressurized oil and they can be replaced by a newer and more expensive type of pump that utilizes an up-to- date drive design having solid drive shafts instead of pressurized oil. Should the shafts by replaced? Based on the problem above, what would you consider as your factors for replacing an existing asset? Write your answers in the space provided below.
PROBLEM 1. A man inherited a regular endowment of P12,904 every end of each month for 10 years. However, he may choose to get a single lump sum payment at the end of 4 years. The cost of money is 15% compounded annually. 1. What is the capital recovery factor for 10 years in a monthly rate, in percentage? 2. How much is this lump sum?
Mary Graham worked as a real estate agent for Piedmont Properties for 15 years. Her annual income is approximately $100,000 per year. Mary is considering establishing her own real estate agency. She expects to generate revenues during the first year of $2 Million. Salaries paid to her employees are expected to total $250,000. To begin the business, Mary must borrow$500,000 from her bank at an interest rate of 15%. Equipment will cost Mary $50,000. At the end of one year, the value of this equipment will be $30,000, even though the depreciation expense for tax pursposes is only $5,000 during the first year. a. Determine the (pre-tax) accounting profit for this venture b. Determine the (pre-tax) economic profit for this venture. c. Which of the costs for this firm are explicit and which are implicit?
2.4. Company C is planning to undertake a project requiring initial investment of P105 million. The project is expected to generate P25 million per year in net cash flows for 7 years. Calculate the payback period of the project.
Assume r = 0.1 is the present real interest rate and this rate is expected to prevail for the next 2 years. The monetary return (i.e. marginal revenue product) on machine A is expected to be R1 = $100,000 for year 1 and R2 = $50,000 for year 2. The present discounted value (PDV) of the net revenue flow from machine A to its owner is equal to ???
Thirteen years ago, you purchased a bond with a 20-year maturity, a $1,000 par value, a 10% nominal coupon rate, with semi-annual coupon payments. The economy interest rate is currently 3% per half year. The first payment is due immediately, and there are 7 more years of semi-annual payments remaining. What is the current market value of the bond (within $10)? Question 10 options: 1216 1236 1256 1276 None of the above
Two refrigerators are available for purchase. One costs more to buy but less to operate as shown below. Both are expected to last 10 years. 3. Refrigerator A $840 Refrigerator B $700 Purchase Price: Annual Operating Cost (in each year): $100 $120 Which is the cheaper source of refrigeration over a ten-year period? Does the prevailing interest rate affect your answer? (Hint: calculate the answer using 3% and again using 12%.)
A semiconductor chip maker purchased a small manufacturing process plant for $2,131,020. The money coming in from that purchase was determined to be $500,000 annually in before-tax cash flow during its 10-year use. The net cash flow after tax is $300,000. If the chip maker wants to realize a 10% return on its investment after tax, for how many more years should the plant operate? (hint, tables)
J&M Manufacturing plans on purchasing a new assembly machine for $30,000 to automate one of its current manufacturing operations. It will cost an additional $5,500 to have the new machine installed. With the new machine, J&M expects to save $11,000 in annual operating and maintenance costs. The machine will last five years with an expected salvage value of $6,000. a. How long will it take to recover the investment (plus installation cost)? The payback period is _______years. (Round up to the nearest whole number.) b. If J&M's interest rate is known to be 13%, determine the discounted payback period. The discounted payback period is _______years. (Round up to the nearest whole number.)
Problem 01-10 (algo) An owner can lease her building for $120,000 per year for three years. The explicit cost of maintaining the building is $40,000, and the implicit cost is $55,000. All revenues are received, and costs borne, at the end of each year. If the interest rate is 8 percent, determine the present value of the stream of: Instructions: Do not round intermediate calculations. Round your final calculation to two decimal places. a. Accounting profits. $217859.8 b. Economic profits. $68081.20
If there is a $120,000 investment on a project and the profits generates $180,0000, what is the return on investment (ROI)? 50% 40% 40% 60% 30%