Multiple choice Q:

Your firm is considering the acquisition of a new fleet of trucks to replace the existing fleet. The trucks are used to haul equipment to various sites, and your engineering department has identified two alternatives.

Option 1: Ford Y-Series (2.5-ton capacity) step-side pickup

-The cost of each truck is $40000

-Each vehicle has a five-year life; after which it will have an estimated market value of $2600

-The annual maintenance on each vehicle is estimated at $800 per year

-A fleet of 100 trucks will be needed

Option 2: Hyundai (2-ton capacity) light-weight flatbed

-The cost of each truck is $30000

-Each vehicle has a four-year life; after which it will have an estimated market value of $1800

-The annual maintenance on each vehicle is estimated at $600 per year

-Because of its different capacity, a fleet of 125 trucks will be needed

Assume that both trucks will be fully depreciated over their respective useful lives using the straight-line depreciation, and a corporate tax rate of 38%. Your job is to determine the most economically efficient option, given that the trucks will be replaced at the end of their useful lives. Assume that the firm requires a 11% after-tax rate of return on investments. Compute the relevant analysis (i.e. AEC) and indicate the best alternative (rounded to nearest $1,000).

Answer from one of the following:

Option 2: Hyundai; Option 2: Hyundai AEC -802000, Option 1: Ford Y-Series AEC -869000

Option 1: Ford Y-Series; Option 1: Ford Y-Series AEC -802000, Option 2: Hyundai AEC -869000

Option 1: Ford Y-Series; Option 1: Ford Y-Series AEC -593000, Option 2: Hyundai AEC -674000

none of them

Option 2: Hyundai; Option 2: Hyundai AEC -593000, Option 1: Ford Y-Series AEC -674000