Austin Audio Systems is considering the purchase of a new delivery truck to replace an existing unit.

Question:

Austin Audio Systems is considering the purchase of a new delivery truck to replace an existing unit. The truck would cost $ 45,000 and would have a life of seven years with no . The existing truck could be sold currently for $ 4,000, but if it is kept, it will have a remaining life of seven years with no . By purchasing the truck, Austin Audio Systems’ managers would anticipate operating cost savings as follows:
Year Amount
1 ....... $ 5,900
2 ....... 8,100
3 ....... 8,300
4 ....... 8,000
5 ....... 8,000
6 ....... 8,300
7 ....... 9,200
Austin Audio Systems’ and capital project evaluation rate is 8 percent.
a. Construct a time line for the purchase of the truck.
b. Determine the payback period. (Ignore taxes.) (Round time to one decimal point.)
c. Calculate the of the truck. (Ignore taxes.)

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