Reference: 10-14
Jimbob Co Jimbob Co Uses a 10% Discount Rate and the Incremental Cost

Reference: 10-14
Jimbob Co. is considering two alternatives to replace a delivery truck. The following data have been gathered concerning these two alternatives: $$\begin{array} { | l | l | r | } \hline & \text { Truck A } & \text { Truck B } \\\hline \text { Purchase cost new } & \$ 50,000 & \$ 70,000 \\\hline \text { Major repairs end of year 2 } & \$ 10,000 & 8,000 \\\hline \text { Annual cash operating costs } & \$ 20,000 & \$ 18,000 \\\hline \text { Salvage value at the end of 3 years } & \$ 15,000 & \$ 20,000 \\\hline\end{array}$$ Jimbob Co. uses a 10% discount rate and the incremental cost approach to capital budgeting analysis. Both trucks are expected to have a useful life of three years.
-The payback period would be closest to?

A) 3.0 years.
B) 3.33 years.
C) 8.0 years.
D) 2.9 years.

Correct Answer:

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