Question: Bubba's Cab Company needs a tow truck to handle breakdowns in their expanding fleet. They have three under consideration, each with a different expected life.
The first choice is a MaxTow 500 which has a cost of $80,000. The truck has an expected life of 5 years and would be depreciated straight-line over this period to a zero salvage value. The truck would have expenses of $12,000 per year. At the end of its 5-year life, the truck could actually be sold for $27,500. The firm's tax rate is 40% and their required rate of return is 13%.
What is the EAA for the MaxTow 500 cab? (Hint: Use the template and take taxes and depreciation into account.)
- $-73,858.25
- $20,998.97
- $19,553.35
- $16,000