You are trying to pick the least-expensive car for your new delivery service You

Question

You are trying to pick the least-expensive car for your new delivery service You have two choices the Soon xA. which will cost $14,000 to purchase and which web have OCF of -51.200 annually throughout the vehicle's expected life of three years as a delivery vehicle and the Toyota Puns. which will cost $20,000 to purchase and which have OCF of -$650 annually throughout that vehicle s expected 4-year life Both care will be worthless at the end of their life You intend to replace whichever type of car you choose with the same thing -Ahen its Me runs out. again and again out into the foreseeable future if the business has a cost of capital of 12 percent, calculate the EAC (Negative amounts should be indicated by a minus sign. Round your answers to 7 decimal places.)

Explanation / Answer

Scion Toyota OCF -1200 -650 life 3 4 rate 12% 12% AF @ 12% $2.40183 $3.03735 PV of OCF ($2,882.20) ($1,974.28) initial cost -14000 -20000 total PV ($16,882.20) ($21,974.28) AF @ 12% 2.401831268 3.037349347 EAC ($7,028.89) ($7,234.69) so choose Scion

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