Your firm’s discount rate is 10 percent. You are considering the purchase of Truck A or Truck B. Truck A costs $100, has a useful life of 3 years, no salvage value and maintenance costs of $10 per year. Truck B costs $80, has a useful life of 2 years, no salvage value and maintenance costs of $15 per year. Which truck should you select and why?
Truck A because the EAC of -50.2 is less than Truck B’s EAC of -61.1
Truck A because the NPV of 125 if larger than B’s NPV of 106
Truck B because the EAC of 61.1 is greater than Truck A’s EAC of 50.2