Considering purchasing new van to deliver bread

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Delta Dawn’s Bakery is considering purchasing a new van to deliver bread. The van will cost $15,000. Two-thirds ($10,000) of this cost will be borrowed. The loan is to be repaid with four equal annual payments (first payment at t = 1) based on an interest rate of 4 %/year. It is anticipated that the van will be used for 6 years and then sold for a salvage value of $2,500. Annual operating and maintenance expenses for the van over the 6-year life are estimated to be $700 per year. If the van is purchased, Delta will realize a cost savings of $3,400 per year. Delta uses a MARR of 6 %/year.

Reference no: EM131090903

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