Your firm’s discount rate is 15 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?
Possible answers:
A. Truck A because the EAC of -53.8 is less than Truck B’s EAC of -64.2
B. Truck A because the NPV of 123 if larger than B’s NPV of 104
C. Truck B because the EAC of 64.2 is greater than Truck A’s EAC of 53.8