Problem: A city has learned that by buying garbage trucks, labor costs for garbage removal would be reduced. You, the analyst, have also collected the following information:
Cost of the trucks today is $400,000
Annual savings in this year's constant dollars is $90,000
Trucks will last for four years, then will be sold for $100,000
The city can borrow money (discount rate) at 7 percent
Inflation (for the next four years) is expected to average 3 percent
All the dollar amounts are in this year's dollars (constant dollars)
Assuming the costs and benefits incur at the end of the year, should the city buy the trucks.