Mustang Auto Parts, Inc. is considering one oftwo forklift trucks for its assembly plant.• Truck A costs $15,000 and requires $3,000 annually in operating expenses. It will have a $5,000salvage value at the end of its three-year servicelife.• Truck B costs $20,000, but requires only $2,000annually in operating expenses; its service life isfour years, at which time its expected salvage valuewill be $8,000.The firm’s MARR is 12%. Assuming that the trucksare needed for 12 years and that no significantchanges are expected in the future price and functional capacity of each truck, select the most economical truck on the basis of AE analysis.
Mustang Auto Parts, Inc. is considering one oftwo forklift trucks for its assembly plant.• Truck A costs $15,000 and requires $3,000 annually in operating expenses. It will have a $5,000salvage value at the end of its three-year servicelife.• Truck B costs $20,000, but requires only $2,000annually in operating expenses; its service life isfour years, at which time its expected salvage valuewill be $8,000.The firm’s MARR is 12%. Assuming that the trucksare needed for 12 years and that no significantchanges are expected in the future price and functional capacity of each truck, select the most economical truck on the basis of AE analysis.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Mustang Auto Parts, Inc. is considering one of
two forklift trucks for its assembly plant.
• Truck A costs $15,000 and requires $3,000 annually in operating expenses. It will have a $5,000
salvage value at the end of its three-year service
life.
• Truck B costs $20,000, but requires only $2,000
annually in operating expenses; its service life is
four years, at which time its expected salvage value
will be $8,000.
The firm’s MARR is 12%. Assuming that the trucks
are needed for 12 years and that no significant
changes are expected in the future price and functional capacity of each truck, select the most economical truck on the basis of AE analysis.
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