(Present Value Tables Are Required

question 86

Multiple Choice

(Present value tables are required. ) The Speedy-Delivery Company has two options for its delivery truck.The first option is to purchase a new truck for $15,000.The new truck will have a useful life of 5 years and a residual value of $2,000.Operating costs for the new truck will be $200.The second option is to overhaul its existing truck.The cost of the overhaul will be $8,000.The overhauled truck will have a useful life of 5 years and a residual value of $0.Operating costs for the overhauled truck will be $600.Using Speedy's discount rate of 5%,which option is better and by what amount?

• A)Better to overhaul by $3,700
• B)Better to purchase new by $3,700
• C)Better to overhaul by $5,144
• D)Better to purchase new by $5,144

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