Calculate the net present value of each motorcycle

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Reference no: EM133715658

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You are starting a family pizza parlor and need to buy a motorcycle for delivery orders. You have two models in mind. Model A costs $9,000 and is expected to run for six years; model B is more expensive, with a price of $14,000 and has an expected life of 10 years. The annual maintenance costs are $800 for model A and $700 for model B. Assume that the opportunity cost of capital is 10 percent. Which would you buy?

Hint: Calculate the net present value (NPV) of each motorcycle and then compute the equivalent annual cost (EAC). Note that since we are dealing with all negative cash flows (costs), we are looking for the alternative with the least negative EAC.

Reference no: EM133715658

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