Question

19. Deutsche Transport is considering to replace an old truck. The old truck can probably run three more year, and will generate cash flows of $37,500 per year for next 3 years. The new truck will cost Deutsche Transport $80,000, and will generate cash flows of $52,000 per year for the next 6 years. If the real opportunity cost of capital is 9%, should Deutsche Transport replace the old truck now or should Deutsche Transport replace it 3 years later? a. Deutsche Transport should not replace the truck now because the equivalent annual worth of the new truck is $34,166.42, less than the annual cash flow generated from the old truck. b. Deutsche Transport should not replace the truck now because the equivalent annual worth of the new truck is $25,544.63, less than the annual cash flow generated from the old truck. c. Deutsche Transport should replace the truck now because the equivalent annual worth of the new truck is $41,277.08, larger than the annual cash flow generated from the old truck.

Answer 1

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no excel function is used. simple present value concept applied

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