Present worth analysis over five-year planning horizon

Assignment Help Business Economics

Reference no: EM131173923

EmKay Carriers is considering the purchase of a new truck to replace one of its aging trucks. The current truck has a remaining life of 5 years and it is expected to have a salvage value of $25,000 at the end of its useful life. Operating and maintenance costs have been $40,000/yr. Currently the truck has a market value of $75,000. A new truck will have an initial cost of $250,000 and an estimated life 15 years. Its market value at the end of 5 years is expected to be $150,000 and it has an annual operating and maintenance cost of $20,000. If this new truck is purchased, then the company expects to sell the existing truck at its market value. Based on a present worth analysis over a 5-year planning horizon, determine if the existing truck should be replaced or not, given MARR is 10% per year compounded annually.

Reference no: EM131173923

Questions Cloud

Assume that hotdogs and hamburgers are substitute goods : Assume that hotdogs and hamburgers are substitute goods. In the competitive market for hamburgers, there is an increase in the price of hotdogs (due to a decrease in the supply of hotdogs), and an increase in the cost of beef, an input used in produc..

Compute the price you expect to receive for the loan : You are an officer of a commercial bank and wish to sell a car loan that the bank owns as an asset to another bank. Using the following equation, compute the price you expect to receive for the loan if the annual interest rate is 6 percent, the car p..

Compute a price-weighted stock price index : Consider the following information on the stock market in a small economy. Company Shares Outstanding Price, beginning of year Price, end of year 1 100 $120 $115 2 1000 $22 $25 3 10,000 $10 $8 Instructions: Round your answers to 1 decimal place. Comp..

Bank account currently pays interest at rate : A bank account currently pays interest at a rate of 3% per year. The current inflation rate is 2% per year. If I invest some money in the bank account, then what is the real interest rate that I am earning? If I decide to withdraw the entire balance ..

Present worth analysis over five-year planning horizon : EmKay Carriers is considering the purchase of a new truck to replace one of its aging trucks. The current truck has a remaining life of 5 years and it is expected to have a salvage value of $25,000 at the end of its useful life. Operating and mainten..

Risk neutral insurance company offers fire insurance policy : A risk averse individual with a wealth of 156,000 and utility function U(x) = sqrt(x) is considering whether to purchase fire insurance for their home. The probability of a fire is 0.03. Repairing the damage from a fire costs 96,000. A risk neutral i..

Average revenue curve and the marginal revenue curve : In a monopoly, the seller has all the market power. What does that imply about the demand and supply curve that the monopolist faces? In perfect competition P(Q)=AR=MR. Under what circumstances will a monopolist also have a demand curve that overlaps..

Analyze the effects on the terms of trade and the welfare : Countries A and B have two factors of production, capital and labour, with which they produce two goods, X and Y. Technology is the same in both countries. X is capital intensive; A is capital abundant. Analyze the effects on the terms of trade and t..

Key components of strategic planning and financial planning : Articulate the key components of strategic planning and financial planning, and relate these to the healthcare industry. Select a hospital and locate its strategic and financial plans (available online), and then carefully examine each plan.

User Account

All Pages