Question

Suppose a company is considering purchasing one of two alternative delivery trucks. Model X will cost $80,000, will have expenses (excluding depreciation) of $260,000 per year, and will have a useful life of three years. Model Y model will cost $120,000, will have expenses (excluding depreciation) of $250,000 per year, and will have a useful life of four years. Suppose the company uses straight-line deprecation and pays taxes at a 40% rate. The cost of capital for the project is 12%. The salvage values (before tax) are $14,000 for Model X and $20,000 for Model Y. What is the equivalent annual cost (EAC) for Model Y? (Round to the nearest cent. Enter your answer as a positive number.)

Answer 1

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