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.
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.
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter17: Long-term Investment Analysis
Section: Chapter Questions
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Transcribed Image Text: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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