The Thunderbird Quick Delivery Company needs a truck and is evaluating two alternatives for meeting its needs

Question:

The Thunderbird Quick Delivery Company needs a truck and is evaluating two alternatives for meeting its needs for the next 10 years.
Choice A: Buy a used Ford truck for $6,000. It will be depreciated straight-line over a 5-year life to a of zero. However, it is expected that the truck will be sold after 4 years for $800. At this point, another used Ford truck will be bought for $12,000. It will last 6 years and will have no market value at the end of this period. This truck will also be depreciated over 5 years on a straight-line basis.
Choice B: Buy a new Chevrolet truck for $16,000. The truck will last the entire 10 years and will have a market value of $1,000 at the end. Again 5-year straight-line depreciation will be used.
Other information: Income tax rate 34%
Cost of capital 12%
which of the two choices is preferable?
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...