The Speedy-Delivery Company Has Two Options for Its Delivery Truck

question 4

Multiple Choice

The Speedy-Delivery Company has two options for its delivery truck. The first option is to purchase a new truck for $14,000. The new truck will have a useful life of 6 years and a residual value of $2000. 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 $8000. 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 $800. Using Speedy's discount rate of 4%, which option is better and by what amount? Present Value of $1
Present Value of Annuity of $1

• A)Better to overhaul by $1275
• B)Better to purchase new by $1275
• C)Better to overhaul by $18,855
• D)Better to purchase new by $18,855

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Definitions:

Masking Stimulus

A stimulus used to interfere with the perception of another stimulus, often used in research to study attention and perception processes.

Stationary Object

An object that is not in motion; remaining in the same place relative to its surroundings.

Just Noticeable Difference

The minimum difference in stimulation that a person can detect 50% of the time, also called the difference threshold.

Ounce

A unit of weight in the avoirdupois system, equivalent to 1/16th of a pound or approximately 28.35 grams.