The city council of Morristown is considering the purchase of one new ?re truck. The options are Truck X and Truck Y. The appropriate ?nancial data are as follows:
Truck X Truck Y
Capital investment $50,000 $64,000
Maintenance cost per year $6,000 $5,000
Useful life 6 years 6 years
Reduction in ?re damage $20,000 $22,000
per year
The purchase is to be ?nanced by money borrowed at 12% per year. Which ?re truck should be purchased?
The correct answer is Truck X.