Internal Rate of Return (Annualized Cost Approach)

Instructions and Preparation:

The town of Millbridge has to make a decision on replacing its garbage truck. It has narrowed the choice down to two different models. Model A will initially cost $80,000 and then will cost $4,100 per year to operate for its 20-year life. Model B will initially cost $100,000 and then will cost $3,600 per year to operate for its 30-year life.

Watch the video and simulate the concept:

https://youtu.be/lWY3abc4hz0

Application:

1. Use the annualized cost approach to determine which is a better choice. Assume a discount rate of 6 percent per year.
2. Present all work and answers