Question 2

Recology needs to purchase a new garbage truck to replace its old one which is now defunct. The organization will purchase one of two models having the following cost characteristics:

	Model Alpha	Model Beta
Initial Investment Amount	130,000	110,000
Annual Outlay Year 1	15,000	10,000
Annual Outlay Year 2	15,000	10,000
Annual Outlay Year 3	15,000	10,000
Annual Outlay Year 4	15,000	10,000
Annual Outlay Year 5		10,000

For all TVM questions that follow, please make sure to complete each column using the example below.

Example:

What is the present value of a $1,000 paid at the end of five years using an 8% discount rate? (round answer to the nearest whole dollar)

Excel Formula (symbols only)	Excel Formula (numbers only)	Answer (number only)
=PV(rate, nper, pmt, [fv], [type])	=PV(8%, 5, 0, 1000, 0)	$681

1. Find the Net Present Cost of Model Alpha assuming a discount rate of 8%. (round your answer to the nearest whole dollar)

Excel Formula (symbols only)	Excel Formula (numbers only)	Answer (number only)

2. Find the Net Present Cost of Model Beta assuming a discount rate of 8%. (round your answer to the nearest whole dollar)

Excel Formula (symbols only)	Excel Formula (numbers only)	Answer (number only)

3. Briefly explain why you cannot directly compare the Net Present Cost of Model Alpha with the Net Present Cost of Model Beta calculated above to determine which model is the better investment.

4. Using your calculations above, find the Annualized Costs of Models Alpha and Beta.

Model Alpha Annualized Cost: (round your answer to the nearest whole dollar)

Excel Formula (symbols only)	Excel Formula (numbers only)	Answer (number only)

Model Beta Annualized Cost: (round your answer to the nearest whole dollar)

Excel Formula (symbols only)	Excel Formula (numbers only)	Answer (number only)

5. Which model truck should Recology purchase? Why?