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Considering the acquisition of a new fleet of trucks

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Reference no: EM132478317

Your firm is considering the acquisition of a new fleet of trucks to replace the existing fleet. The trucks are used to haul equipment to various sites, and your engineering department has identified two alternatives.

Option 1: Ford Y-Series (2.5-ton capacity) step-side pickup

- The cost of each truck is $40000

- Each vehicle has a five-year life; after which it will have an estimated market value of $2600

- The annual maintenance on each vehicle is estimated at $800 per year

- A fleet of 100 trucks will be needed

Option 2: Hyundai (2-ton capacity) light-weight flatbed

- The cost of each truck is $30000

- Each vehicle has a four-year life; after which it will have an estimated market value of $1800

- The annual maintenance on each vehicle is estimated at $600 per year

- Because of its different capacity, a fleet of 125 trucks will be needed

Assume that both trucks will be fully depreciated over their respective useful lives using the straight-line depreciation, and a corporate tax rate of 38%. Your job is to determine the most economically efficient option, given that the trucks will be replaced at the end of their useful lives. Assume that the firm requires a 11% after-tax rate of return on investments. Compute the relevant analysis (i.e. AEC) and indicate the best alternative (rounded to nearest $1,000).

Reference no: EM132478317

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