The two equivalent tractors in the following table are being
considered for purchase by a Farm. The farm manager wants your
input on selecting one of the two tractors based on both profitability
and liquidity. If the farm has a minimum attractive rate of return of
15%, what are your recommendations based on capitalized worth
analysis and payback period? Comment on your findings.
Tractor A Tractor B
Purchase Price $12,000 $8,000
Annual income $3,500 $1,500 (years 1-5)
less expenses $3,000 (years 6-15)
Salvage Value $1000 $1000
Maximum life 7 Years 15 Years