ACCA · Question 10 · Investment Appraisal
Section A
LogisticsPlus is deciding whether to replace its delivery trucks every 2 years or every 3 years. The cost of capital is 10%.
Based on the Equivalent Annual Cost (EAC), which replacement cycle should be chosen and why?
Answer options:
The 2-year cycle, because its PV of costs ($45,000) is lower than the 3-year cycle.
The 2-year cycle, because its EAC is $25,922, which is lower than the 3-year cycle's EAC.
The 3-year cycle, because its EAC is $24,125, which is lower than the 2-year cycle's EAC.
The 3-year cycle, because it delays the capital expenditure for an extra year.
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