Question

Question 4 (20p): Information about the two trucks to be taken to Arel Flour Factory is given below. Their economic lives are equal. If the cost of capital is 20%, which alternative would you choose? X = Purchase Cost = 132.000 Annual Operating Expense= 15,000 Scrap Value = 23,000 Economic Life = 10 years Capital Cost = 20% Y= Purchase Cost 145,000 Annual Operating Expense 19.000 Scrap Value 29,000 Economic Life 10 years Capital Cost 20%

          Question 4 (20p): Information about the two trucks to be taken to Arel Flour Factory is given below. Their economic lives are equal. If the cost of capital is 20%, which alternative would you choose?
  X  =       
Purchase Cost  =    132.000          
Annual Operating Expense=  15,000              
Scrap Value     =  23,000                
Economic Life    = 10 years              
Capital Cost     =  20%                   
Y=
Purchase Cost 145,000
Annual Operating Expense 19.000
Scrap Value 29,000
Economic Life 10 years
Capital Cost 20%

Added by Jaclyn S.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Matthew Wagner

Step 1

We can use the formula: PV = C / (1 + r)^n where PV is the present value, C is the cash flow, r is the cost of capital, and n is the number of years. For alternative X, the cash flows are: - Purchase cost: -132,000 - Annual operating expense: -15,000 for 10 Show more…

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Question 4 (20p): Information about the two trucks to be taken to Arel Flour Factory is given below. Their economic lives are equal. If the cost of capital is 20%, which alternative would you choose? X = Purchase Cost = 132.000 Annual Operating Expense= 15,000 Scrap Value = 23,000 Economic Life = 10 years Capital Cost = 20% Y= Purchase Cost 145,000 Annual Operating Expense 19.000 Scrap Value 29,000 Economic Life 10 years Capital Cost 20%