A local sanitation authority needs to purchase a new garbage truck. The authority has two truck models under consideration. The purchase price for Model A is $90, 000. The maintenance and operation costs are $10,000/year. Model B is less expensive to acquire ($60,000 at purchase), but costs more on operation and maintenance. Details of the costs are shown in the table below. Interest rate is 4%. Please help this authority to decide which truck they should purchase.YearModel A TruckModel B TruckPurchase Price (beginning of year)$90,000$60,000Annual Operation and Maintenance (end of year) 1$10,000$20,0002$10,000$20,0003$10,000$20,0004$10,000$20,000Calculate the present values of total costs for Model A Truck and Model B Truck, respectively. (Interest rate: 4%) (2’)Present value of Model A Truck total costs:Present value of Model B Truck total costs:Which truck model should this authority choose? Why? (1’)

Time interval plays a big role in determining the inflows and outflows of an investment ,therefore…

Answered: A local sanitation authority needs to…

Excel Applications for Accounting Principles

4th Edition

ISBN:9781111581565

Author:Gaylord N. Smith

Publisher:Gaylord N. Smith

Chapter26: Capital Budgeting (capbud)

Section: Chapter Questions

Problem 5R

See similar textbooks

Related questions

Question

A local sanitation authority needs to purchase a new garbage truck. The authority has two truck models under consideration. The purchase price for Model A is $90, 000. The maintenance and operation costs are $10,000/year. Model B is less expensive to acquire ($60,000 at purchase), but costs more on operation and maintenance. Details of the costs are shown in the table below. Interest rate is 4%. Please help this authority to decide which truck they should purchase.

Year	Model A Truck	Model B Truck
Purchase Price (beginning of year)	$90,000	$60,000
Annual Operation and Maintenance (end of year) 1	$10,000	$20,000
2	$10,000	$20,000
3	$10,000	$20,000
4	$10,000	$20,000

Calculate the present values of total costs for Model A Truck and Model B Truck, respectively. (Interest rate: 4%) (2’)
Present value of Model A Truck total costs:
Present value of Model B Truck total costs:
Which truck model should this authority choose? Why? (1’)

Expert Solution