A contractor has to choose one of the following alternatives in performing earth
ID: 2719875 • Letter: A
Question
A contractor has to choose one of the following alternatives in performing earthmoving contracts:
A. Buy a truck for $35,000. Salvage value is expected to be $8,000 at the end of its 7-year depreciable life. Maintenance is $2,500 per year. Daily operating expenses are $200.
B. Hire a similar unit for $550 per day
Based on a 10% after tax-rate of return, how many days per year must the truck be used to justify the purchace? base calculations on straight line depreciation and a 40% income tax rate. Answer should be 30 days...
Explanation / Answer
Cost of Truck 35000 Less:Solvage 8000 Net Cost 27000 Year of Life 7 Annual Depreciation 3857.14 Add: Annual Maintenance cost 2500 Total Fixed Cost 6357.14 Cost of Hiring per day 550 Less: Daily Cost if buy truck 200 Net Savings per day 350 Tax @ 40% 140 Savings after Tax 210 Break Even days = 6357.14/210 = 30.27 or 30 days Answer: 30 days
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.