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Mary is considering purchasing a new work utility vehicle (ute). The purchase price, expected maintenance costs, expected salvages value and useful lives of two different
Mary is considering purchasing a new work utility vehicle (ute). The purchase price, expected maintenance costs, expected salvages value and useful lives of two different models are detailed below. Mary's cost of capital is 12% per annum. Model A Model B Purchase price $65,000 $45,000 Annual maintenance cost $5,000 $10,000 Salvage Value at end of useful life $25,000 $15,000 Useful life 10 years 5 years (a) What is the market value of each ute at the end of year 5? (2 marks) (b) Assuming that Mary will sell the ute at the end of year 5, which ute should she select? (2 marks)
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