Terry, an engineering technology graduate who is very entrepreneurial, wants to start an excavation and foundation business in Orlando by investing his own savings to fund part of the start-up. A primary decision is the size of a used dump truck to purchase. He knows that as the bed size increases, the net income increases, but he is uncertain whether the incremental expenditures for the larger sizes are justified. The estimated cash flows are listed below; all trucks have a 5-year useful life. Terry expects a return of at least 18% per year on this investment. (a) Determine which size truck he should purchase. (b) If two trucks are to be purchased, select the size of the second truck. (C) Make both selections using a spreadsheet. (Using single-cell functions for each incremental analysis is acceptable.)

 

Truck Bed Initial M&O, S/year Annual Size, m Cost, $ Revenue, $/year Salvage Value, S 8 -30,000 -14,000 26,500 2,000 10 -34,000 -15,500 30,000 2,500 15 -38,000 -18,000 33,500 3,000 20 -48,000 -21,000 40,500 3,500 25 -57,000 -26,000 49,000 4,600