A company is in need of a small vehicle to make deliveries. It is intending to choose between 2 options. One option is to buy a new 2 wheeler that would cost Rs.75000/- and serve for 8 years, The other alternative is to buy a second hand vehicle for Rs.45000/- now that could serve the firm for 4 years. Thereafter the firm can buy another second hand vehicle for Rs.40,000/- that lasts for another 4 years. The firm can utilize the WDV of the vehicle's whenever they are discarded. The firm pay 30% tax and is allowed to claim depreciation on vehicles of 25% on WDV basis. If the cost of capital for the firm is 12% which of the option the firm should adopt?

A company is in need of a small vehicle to make deliveries. It is intending to choose between 2 options. One option is to buy a new 2 wheeler that would cost Rs.75000/- and serve for 8 years, The other alternative is to buy a second hand vehicle for Rs.45000/- now that could serve the firm for 4 years. Thereafter the firm can buy another second hand vehicle for Rs.40,000/- that lasts for another 4 years. The firm can utilize the WDV of the vehicle's whenever they are discarded. The firm pay 30% tax and is allowed to claim depreciation on vehicles of 25% on WDV basis. If the cost of capital for the firm is 12% which of the option the firm should adopt?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter3: Cost-volume-profit Analysis

Section: Chapter Questions

Problem 8EB: Shonda & Shonda is a company that does land surveys and engineering consulting. They have an...

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