John is evaluating his truck inventory. One three year old vehicle has a book value of $22 500. Currently its maintenance costs are $1 100 per year. They have increased by 20% annually and are expected to increase by the same percentage in the future. Calculate the equivalent annual costs for the first five years knowing that the van's purchase price was $32 000 and the minimum acceptable rate of return is 15%.
John is evaluating his truck inventory. One three year old vehicle has a book value of $22 500. Currently its maintenance costs are $1 100 per year. They have increased by 20% annually and are expected to increase by the same percentage in the future. Calculate the equivalent annual costs for the first five years knowing that the van's purchase price was $32 000 and the minimum acceptable rate of return is 15%.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:John is evaluating his truck inventory. One three year old vehicle has a book value of
$22 500. Currently its maintenance costs are $1 100 per year. They have increased by
20% annually and are expected to increase by the same percentage in the future.
Calculate the equivalent annual costs for the first five years knowing that the van's
purchase price was $32 000 and the minimum acceptable rate of return is 15%.
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