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Daisy Co. is considering purchasing a new industrial tractor for its farming operations. It is deciding between two tractors, both made by reputable companies. Tractor
Daisy Co. is considering purchasing a new industrial tractor for its farming operations. It is deciding between two tractors, both made by reputable companies. Tractor A would cost $50,000 initially and then would cost $5,000 per year to maintain. Tractor B would cost $60,000 initially and then would cost $1,500 per year to maintain. Note that maintenance costs are payable every year starting from year 1 until, and including, the end of the estimated useful lives. No maintenance costs would be required initially (in year 0). Tractor A would have a useful life of five years and Tractor B would have a three-year useful life. Both tractors have zero salvage value. Assume that Daisy Co. will continue to replace worn-out tractors with similar ones and that the discount rate is 15%. Daisy Co. has come to you for advice: Which tractor should it purchase? a. Tractor A b. Tractor B C. Either Tractor A or B would be fine; ie. Daisy Co. should be indifferent to the two tractors. O d. There is not enough information to answer the
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