Afour-year-old truck has a present net realizable value of $6,500 and is now expected to have a market value of $1,800 after its remainingthree-year life. Its operating disbursements are expected to be $700 per year.

An equivalent truck can be leased for $0.35 per mile plus $35 a day for each day the truck is kept. The expected annual utilization is 3,500 miles and 30 days. If thebefore-tax MARR is 18%, find which alternative is better by comparingbefore-tax equivalent annual costs

a. using only the precedinginformation;

b. using further information that the annual cost of having to operate without a truck is $2,250.

a. Thebefore-tax equivalent annual cost for keeping the old truck is

$?

Thebefore-tax equivalent annual cost for leasing a truck is

$?

Which alternative isbetter? Choose the correct answer below.

Lease

Keepold

b. Which alternative isbetter? Choose the correct answer below.

Operatewithouttruck

Lease