Question

A​ four-year-old truck has a present net realizable value of $6,000 and is now expected to have a market value of $1,900 after its remaining​ three-year life. Its operating disbursements are expected to be $740 per year. An equivalent truck can be leased for $0.35 per mile plus $25 a day for each day the truck is kept. The expected annual utilization is 2,500 miles and 30 days. The effective income tax rate is 45​%, the present book value is $4,750​, and the depreciation charge is ​$900 per year if the firm continues to own the truck. If any gains or losses on disposal of the old truck affect taxes at the full 45​% ​rate, and the​ after-tax MARR is 5​%, find which alternative is better by comparing​ after-tax equivalent PWs

a. using only the preceding​ information;

b. using further information that the annual cost of having to operate without a truck is ​$2,000.

Answer 1