Norton Auto Parts, Inc., is considering two different forklift trucks for use in its assembly plant: Truck
Question:
Norton Auto Parts, Inc., is considering two different forklift trucks for use in its assembly plant:
- Truck A costs $15,000 and requires $3,000 in annual operating expenses. It will have a $5,000 salvage value at the end of its three-year service life.
- Truck B costs $20,000 but requires only $2,000 in annual operating expenses; its service life is four years after which its expected salvage value is $8,000.
The firm’s MARR is 12%. Assuming that the truck is needed for 12 years and that no significant changes are expected in the future price and functional capacity of both trucks, select the most economical truck based on AE analysis.
Salvage ValueSalvage 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... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
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Since the required service period is 12 years and the future replacement cost for each tr...View the full answer
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