Question

A new municipal refuse-collection truck can be purchased for $84,000. Its expected useful life is six years, at which time its market value will be zero. Annual receipts less expenses will be approximately $18,000 per year over the six-year study period. Use the PW method and a MARR of 18% to determine whether this is a good investment.

Answer 1

PW

= - C0 + PW of annual receipt less expenses as annuity

$= - C0 + B * PVAF (n, r)\\ = - 84,000 + 18,000 (6, 18 \%)\\ = - 84,000 + 18,000 / 18 \% \times [1 - (1 + 18 \%)-6]\\ = -21,043.15\\$

Since the PW is negative, this is not a good investment.