The Fast Truck Company has two options for its delivery truck. The first option is to purchase a new truck for
$19,000. The new truck will have a useful life of
6 years and a residual value of
$1,000. Operating costs for the new truck will be
$100. The second option is to overhaul its existing truck. The cost of the overhaul will be
$9,000. The overhauled truck will have a useful life of
6 years and a residual value of $0. Operating costs for the overhauled truck will be
$700. Using the company's discount rate of
6%, which option is better and by what amount?
Present Value of $1
Periods
4%
5%
6%
4
0.855
0.823
0.792
5
0.822
0.784
0.747
6
0.790
0.746
0.705
Present Value of Annuity of $1
Periods
4%
5%
6%
4
3.630
3.546
3.465
5
4.452
4.329
4.212
6
5.242
5.076
4.917
Question content area bottom
Part 1
A.
Better to purchase new by
$25,050
B.
Better to purchase new by
$6,345
C.
Better to overhaul by
$6,345
D.
Better to overhaul by
$25,050
