Question
A firm can purchase a delivery truck today for $15,000. The truck will provide benefits of $5,000/year with an expected life of 5 years and
A firm can purchase a delivery truck today for $15,000. The truck will provide benefits of $5,000/year with an expected life of 5 years and the first $5,000 realized in exactly one year from the purchase. Alternatively, the firm could wait to purchase the truck for 3 years, at which time the truck is expected to decrease in price to $12,295. If the firm waits to purchase the truck, the truck would realize the same $5,000 of benefits/year for 5 years, with the first $5,000 realized exactly one year from the date of purchase. Assuming a 10% discount rate, what is the optimal decision for the firm to make, and why? Round any value in your answer to the nearest thousand. Hint- the present value of a $5,000 annuity for 5 years is $18,953.93
Group of answer choices
Plan to purchase the truck in three years because it will add $7,000 of value today
Plan to purchase the truck in three years because it will add $5,000 of value today
Purchase the truck today because it will add $4,000 of value to the company immediately
Do not purchase the vehicle because it has a negative NPV
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