Chapter 7, Problem 7.2P

Present Value, Present Value of an Ordinary Annuity, Analysis of Alternatives. Boyne Painting Contractors needs to purchase a new truck. The owner is considering two different truck models that are currently on the market. Boyne’s two alternatives are presented here:

Truck A: Boyne can purchase Truck A for $45,000. The truck has a useful life of 12 years and will require annual maintenance costs of $1,500 each year. Boyne expects to sell the truck for $7,000 after 12 years.

Truck B: Boyne can purchase Truck B for $40,000. This truck also has a useful life of 12 years but will have no scrap value. It will require maintenance costs every four years as follows:

Year 4:	$3,000
Year 8:	$6,000
Year 12:	$8,000

Which truck should Boyne purchase given an interest rate of 6% compounded annually? Assume that maintenance costs will be paid at year-end.