The Fast Truck Company has two options for its delivery truck. The first option is to purchase a new truck for

$19,000. The new truck will have a useful life of

6 years and a residual value of

$1,000. Operating costs for the new truck will be

$100. The second option is to overhaul its existing truck. The cost of the overhaul will be

$9,000. The overhauled truck will have a useful life of

6 years and a residual value of $0. Operating costs for the overhauled truck will be

$700. Using the company's discount rate of

6%, which option is better and by what amount?

Present Value of $1

Periods	4%	5%	6%
4	0.855	0.823	0.792
5	0.822	0.784	0.747
6	0.790	0.746	0.705

Present Value of Annuity of $1

Periods	4%	5%	6%
4	3.630	3.546	3.465
5	4.452	4.329	4.212
6	5.242	5.076	4.917

Question content area bottom

Part 1

A.

Better to purchase new by

$25,050

B.

Better to purchase new by

$6,345

C.

Better to overhaul by

$6,345

D.

Better to overhaul by

$25,050