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Eat at State is considering buying a new food truck. It will cost $65,000, but is expected to generate $20,000 in sales each year over the next 4 years.
At the end of the 4th year, the truck will be sold to Eat Like a Wolverine in Ann Arbor for $10,000 (after taxes). It will require $5,000 in additional Net
Working capital that will not be recovered when the truck is sold. The Dean of Food Services will only authorize the purchase if it is cash positive by the
end of the 4th year. Using the payback period method, should the truck be purchased, and why?
Multiple Choice
Do not purchase; the initial expenses will not be recovered in 4 years
Do not purchase; the initial expenses will be recovered in exactly 4 years
Purchase the truck; the initial expenses will be recovered in Year 3
Purchase the truck; the initial expenses will be recovered plus an additional $20,000 by the end of Year 4
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