Reference: 10-14
Jimbob Co Jimbob Co Uses a 10% Discount Rate and the Incremental Cost

question 51

Multiple Choice

Reference: 10-14
Jimbob Co. is considering two alternatives to replace a delivery truck. The following data have been gathered concerning these two alternatives: $$\begin{array} { | l | l | r | } \hline & \text { Truck } A & \text { Truck } B \\\hline \text { Purchase cost new } & \$ 50,000 & \$ 70,000 \\\hline \text { Major repairs end of year } 2 & \$ 10,000 & 8,000 \\\hline \text { Annual cash operating costs } & \$ 20,000 & \$ 18,000 \\\hline \text { Salvage value at the end of 3 years } & \$ 15,000 & \$ 20,000 \\\hline\end{array}$$ Jimbob Co. uses a 10% discount rate and the incremental cost approach to capital budgeting analysis. Both trucks are expected to have a useful life of three years.
-In comparing these two alternatives, which is the correct evaluation

• A)Truck A should be purchased as the net present value of the costs of this alternative is the lowest.
• B)Truck B should be purchased as the net present value of the costs of this alternative is the highest.
• C)Truck B should be purchased as the net present value of the costs of this alternative is the lowest.
• D)Truck A should be purchased as the net present value of the costs of this alternative is the highest.

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Definitions:

Interpersonal Relationships

Interactions and connections between two or more people which can be emotional, social, or professional in nature.

Early Life Attachments

The emotional bonds formed by children with their caregivers, influencing personality development and behavior in later life.

Self-actualizing Potential

Refers to an individual's ability to achieve their fullest potential, emphasizing personal growth, self-discovery, and the realization of personal capabilities.

Psychodynamic Heritage

Refers to the theories and therapeutic techniques that are rooted in psychoanalytic principles, emphasizing unconscious processes and early life experiences in shaping personality.