Question: It is the policy of Beaj ltd to replace its vehicle after 5 years. the market value of a vehicle due for replacement is estimated to be $20000. a new vehicle to replace it is quoted as $78000. the money cost of capital is 25%. the acquisition of the new vehicle will lead to the following annual cost savings.
fuel $12000
maintenance $10000
the following annual inflation rates are projected
fuel 6%
maintenance 4%
general 8%
on purely financial ground, advise Beaj ltd whether the new vehicle should be purchased to replace the existing one.