Please help identify the correct equation to determine Nominal Dollar. Cost/Benefit and Present Value. Please explain how this equation is used. Thank you!

 

17.2. A city has learned that by buying larger garbage trucks, it could reduce labor costs for garbage removal. Cost of the trucks today is $400,000. Annual savings in this year's constant dollars is $90,000. Trucks will last for 4 years and then will be sold for $100,000. The city can borrow money at a 7% discount rate to purchase the trucks. Inflation (for the next 4 years) is expected to average 3%. Note: All the dollar amounts are in this year's dollars (constant dollars). Assuming the costs and benefits are incurred at the end of the year, should the city buy the trucks? Question: A city has learned that by buying larger garbage trucks, labor costs for garbage removal would be reduced. Cost of the trucks today: Annual savings in this year's constant dollars Trucks will last for 4 years, then be sold for: The city can borrow money (discount rate) at: Inflation (next 4 years) is expected to average: 400,000 90,000 100,000 7.00% Note: all the dollar amounts are in this year's dollar (constant dollar). Assuming the cost and benefit incur at the end of the year, should the city buy the trucks? 3.00% Calculation: Real Dollars Description Time Costs/Benefits Nominal Doll. Costs/Benefit Present value Purchase Benefits Benefits Benefits Benefits Residual 012344 -400,000 90,000 90,000 90,000 90,000 100,000 Total Net PV Select one (with "x"): The city should not buy the trucks because the net present value of the decision is positive. The city should buy the trucks because the net present value of the decision is positive.