Question

Question 2: A not for profit organization wishes to buy a truck to transport supplies.

For Alterative A the cost of the truck is $30,000. The truck is expected to be driven 15,000 miles per year. Currently, gas mileage is 25 mpg and gas is $2.50 gal. Assume you buy gas in bulk every 6 months. The truck will need basic maintenance every 5,000 miles with an expected cost of $100. The truck will need major maintenance every 50,000 miles at $1,500 per maintenance visit. The truck should last about 150,000 miles. At 150,000 miles the salvage value will be no more than $3,000.

For Alternative B the truck can be leased for $10,200 a year. You are still expected to pay the basic maintenance and gas for the truck. However, there will be no salvage value at the end of its life.

Create a cash flow for both opportunities.

Answer 1