A contractor has to choose one of the following alternatives in performing earth-moving contracts: (a) Purchase a

Question:

A contractor has to choose one of the following alternatives in performing earth-moving contracts:

(a) Purchase a heavy-duty truck for $13,000. Salvage value is expected to be $3000 at the end of the vehicle's 7-year depreciable life. Maintenance is $1100 per year. Daily operating expenses are $35.

(b) Hire a similar unit for $83 per day. Based on a 10% after-tax rate of return, how many days per year must the truck be used to justify its purchase? Base your calculations on straight-line depreciation and a 50% income tax rate.

Depreciation
Depreciation is an important concept in accounting. By definition, depreciation is the wear and tear in the value of a noncurrent asset over its useful life. In simple words, depreciation is the cost of operating a noncurrent asset producing... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...