ABC Construction must replace a number of its concrete mixer trucks with new trucks. It has received two bids and has evaluated closely the performance characteristics of the various trucks. The truck A, which costs $84,000, is top-of-the-line equipment. The truck has a life of eight years, assuming that the engine is rebuilt in the fifth year. Maintenance costs of $2,500 a year are expected in the first four years, followed by total maintenance and rebuilding costs of $12,000 in the fifth year. During the last three years, maintenance costs are expected to be $4,000 a year. At the end of eight years the truck will have an estimated scrap value of $10,000.

The trucks B cost $51,000 a truck. Maintenance costs for the truck will be higher. In the first year they are expected to be $4,000, and this amount is expected to increase by $1,500 a year through the eighth year. In the fourth year the engine will need to be rebuilt, and this will cost the company $18,000 in addition to maintenance costs in that year. At the end of eight years the truck will have an estimated scrap value of $7,000.

1. a)Using MACRS (5-year property), estimate the after-tax cash flows related to the trucks? (Use Tax rate of 35%)
2. b)If ABC Construction's opportunity cost of funds is 10%, which truck should it accept?
3. c)If its opportunity cost were 15%, would your answer change?
4. d)At what opportunity cost will truck A and B be equal?