Norton Auto Parts, Inc., is considering two different forklift trucks for use in its assembly plant:1. Truck A costs $15,000 and requires $3,000 in annual operating expenses. It will have a $5,000 salvage value at the end of its three-year service life.2. Truck B costs $20,000 but requires only $2,000 in annual operating expenses; its service life is four years after which its expected salvage value is $8,000. The firm's MARR is 12%. Assuming that the truck is needed for 12 years and that no significant changes are expected in the future price and functional capacity of both trucks, select the most economical truck based on AE analysis.
Norton Auto Parts, Inc., is considering two different forklift trucks for use in its assembly plant:1. Truck A costs $15,000 and requires $3,000 in annual operating expenses. It will have a $5,000 salvage value at the end of its three-year service life.2. Truck B costs $20,000 but requires only $2,000 in annual operating expenses; its service life is four years after which its expected salvage value is $8,000. The firm's MARR is 12%. Assuming that the truck is needed for 12 years and that no significant changes are expected in the future price and functional capacity of both trucks, select the most economical truck based on AE analysis.
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 1R
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Norton Auto Parts, Inc., is considering two different forklift trucks for use in its assembly plant:
1. Truck A costs $15,000 and requires $3,000 in annual operating expenses. It will have a $5,000 salvage value at the end of its three-year service life.
2. Truck B costs $20,000 but requires only $2,000 in annual operating expenses; its service life is four years after which its expected salvage value is $8,000.
The firm's MARR is 12%. Assuming that the truck is needed for 12 years and that no significant changes are expected in the future price and functional capacity of both trucks, select the most economical truck based on AE analysis.
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