When to Replace an Asset: Nemo Haulers Is Considering Whether

question 30

Multiple Choice

When to replace an asset: Nemo Haulers is considering whether to purchase a new mini tractor for moving furniture within its warehouse. Nemo calculates that its current mini tractor generates $3,100 of cash flow per year. A new mini tractor would cost $3,000 and would provide cash flow of $4,000 per year for five years. What is the equivalent annual cash flow for the new mini tractor (round to the nearest dollar) , and should Nemo purchase the new tractor? Assume the cost of capital for Nemo is 10 percent.

• A) $3,000, do not purchase the new tractor
• B) $3,209, purchase the new tractor
• C) $4,000, purchase the new tractor
• D) $12,163, purchase the new tractor

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Definitions:

Agreement

A mutual understanding or arrangement, typically formalized by a contract, between two or more parties regarding their rights and obligations.

Warranty Of Title

A guarantee provided by a seller to a buyer that they legally own the item being sold and have the right to sell it, free from any claims by others.

Security Interest

A legal claim or lien on property, both real and personal, granted to secure the performance of an obligation, often the repayment of a loan.

Provincial Personal Property

Property, excluding real estate, owned by individuals or entities within a specific province.