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Your company is deciding which brand of forklift to purchase. They have narrowed their options to two brands-the Alpha or the Mighty. The Alpha sells
Your company is deciding which brand of forklift to purchase. They have narrowed their options to two brands-the Alpha or the Mighty. The Alpha sells for $50,000. The annual operating costs are expected to be $6,000 per year. At the end of 5 years the seller will buy back the used forklift for $10,000. The Mighty sells for $60,000. The annual operating costs are expected to be $6,400 per year. At the end of 7 years the seller will buy back the used forklift for $16,000. Assume expenses occur at the beginning of the year. Time Diagram Required (a) If the interest rate is 10% effective which forklift should the company choose? [12 marks] The maker of the Alpha forklift has offered to increase the price it will pay when it repurchases the forklift at the end of 5 years. What price must they pay to make the two options equally attractive? [7 marks] c) The Canadian government has decided to offer a one time tax credit to purchasers of the Alpha forklifts to encourage people to buy Canadian made products. (The Mighty is made in the U.S.A). The tax credit is received one year after purchase. How large must the tax credit be to make the two options equally attractive? [8 marks]
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