Advise beaj ltd whether new vehicle should be purchased

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Reference no: EM131815553

Question: It is the policy of Beaj ltd to replace its vehicle after 5 years. the market value of a vehicle due for replacement is estimated to be $20000. a new vehicle to replace it is quoted as $78000. the money cost of capital is 25%. the acquisition of the new vehicle will lead to the following annual cost savings.

fuel $12000
maintenance $10000
the following annual inflation rates are projected
fuel 6%
maintenance 4%
general 8%

on purely financial ground, advise Beaj ltd whether the new vehicle should be purchased to replace the existing one.

Reference no: EM131815553

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