Question: Work Problem by comparing after-tax equivalent PWs if the effective income tax rate is 40%, the present book value is $5,000, and the depreciation charge is $1,000 per year if the firm continues to own the truck. Any gains or losses on disposal of the old truck affect taxes at the full 40% rate, and the after-tax MARR is 5%.
Problem: A four-year-old truck has a present net realizable value of $6,000 and is now expected to have a market value of $1,800 after its remaining three-year life. Its operating disbursements are expected to be $720 per year. An equivalent truck can be leased for $0.40 per mile plus $30 a day for each day the truck is kept. The expected annual utilization is 3,000 miles and 30 days. If the before-tax MARR is 15%, find which alternative is better by comparing before-tax equivalent annual costs
a. using only the preceding information;
b. using further information that the annual cost of having to operate without a truck is $2,000.