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Delta Dawn's Bakery is considering purchasing a new van to deliver bread. The van will cost $18,000. Two-thirds ($12,000) of this cost will be borrowed.
Delta Dawn's Bakery is considering purchasing a new van to deliver bread. The van will cost $18,000. Two-thirds ($12,000) of this cost will be borrowed. The loan is to be repaid with 4 equal annual payments (first payment at t = 1) based on an interest rate of 4%/yr. It is anticipated that the van will be used for 6 years and then sold for a salvage value of $500. Annual operating and maintenance expenses for the van over the 6-year life are estimated to be $700 per year. If the van is purchased, Delta will realize a cost savings of $3,800 per year. Delta uses a MARR of 6%/yr. a) Based on an internal rate of return analysis, is the purchase of the van economically attractive
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