Your firm’s discount rate is 8 percent. You are considering the purchase of Truck A or Truck B. Truck A costs $120, 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? Please show your work.
A) Truck A because the EAC of -56.6 is less than Truck B’s EAC of -59.9
B) Truck A because the NPV of 146 if larger than B’s NPV of 107
C) Truck B because the EAC of 59.9 is greater than Truck A’s EAC of 56.6