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:

Production Possibilities

The different combinations of goods and services that can be produced from a fixed set of resources.

United States

A federal republic consisting of 50 states, a federal district, and various territories, known for its vast size, diverse culture, and significant global influence.

Japan

An island country located in East Asia, known for its rich cultural heritage, advanced technology, and strong economy.

Comparative Advantage

The proficiency of an individual or collective in performing a certain economic function more efficiently than a different function.