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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.
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