A local sanitation authority needs to purchase a new garbage truck. The authority has two truck models under consideration. The purchase price for Model A is $90, 000. The maintenance and operation costs are $10,000/year. Model B is less expensive to acquire ($60,000 at purchase), but costs more on operation and maintenance. Details of the costs are shown in the table below. Interest rate is 4%. Please help this authority to decide which truck they should purchase. Year Model A Truck Model B Truck Purchase Price (beginning of year) $90,000 $60,000 Annual Operation and Maintenance (end of year) 1 $10,000 $20,000 2 $10,000 $20,000 3 $10,000 $20,000 4 $10,000 $20,000 The authority charges garbage collection fees from local residents. The estimated fee collection is $38,000 per year. Compare the present value of total costs of the truck model you choose and the present value of total revenues. Calculate the present value of total benefit, the net present value, and the benefit-cost ratio. Interpret what your results suggest. (2’) *Results round to the nearest 2 decimal digits. Present value of total benefits: Net Present Value: Benefit-Cost Ratio: What do the net present value and the benefit-cost ratio suggest? Interpret the results.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter9: Accounting For Receivables

Section: Chapter Questions

Problem 5TP: You own a construction company and have recently received a contract with the local school district...

See similar textbooks

Related questions

Question

A local sanitation authority needs to purchase a new garbage truck. The authority has two truck models under consideration. The purchase price for Model A is $90, 000. The maintenance and operation costs are $10,000/year. Model B is less expensive to acquire ($60,000 at purchase), but costs more on operation and maintenance. Details of the costs are shown in the table below. Interest rate is 4%. Please help this authority to decide which truck they should purchase.

Year	Model A Truck	Model B Truck
Purchase Price (beginning of year)	$90,000	$60,000
Annual Operation and Maintenance (end of year) 1	$10,000	$20,000
2	$10,000	$20,000
3	$10,000	$20,000
4	$10,000	$20,000

The authority charges garbage collection fees from local residents. The estimated fee collection is $38,000 per year. Compare the present value of total costs of the truck model you choose and the present value of total revenues. Calculate the present value of total benefit, the net present value, and the benefit-cost ratio. Interpret what your results suggest. (2’)

*Results round to the nearest 2 decimal digits.

Present value of total benefits:

Net Present Value:

Benefit-Cost Ratio:

What do the net present value and the benefit-cost ratio suggest? Interpret the results.

Expert Solution