12-3 EAC Approach: You are trying to pick the least-expensive car for your new delivery service.

You h
cost $14,000 to purchase and which will have OFC of - $1,200 annually throughout the vehicle's expecte
and the Toyota Prius, which will cost $20,000 to purchase and which will have OFC of - $650 annually t
cars will be worthless at the end of their life. If you intend to replace whichever type of car you choose w
and again out into the foreseeable future, and if your business has a cost of capital of 12 percent, which o
Year
Scion xA CFs
Toyota Prius CFs

$
$

0
(14,000) $
(20,000) $

1
(1,200)
(650)

Scion xA NVP:
$

(14,000.00)
1.12^0

(14,000.00)

(16,882.20)

(20,000.00)
1.12^0

(20,000.00)

(21,950.00)

(1,200.00)
1.12^1

(1,071.43)

(650.00)
1.12^1

(580.36)

NVP Toyota Prius:

ar for your new delivery service. You have two choices: the Scion xA, which will
nually throughout the vehicle's expected life of three years as a delivery vehicle;
ich will have OFC of - $650 annually throughout that vehicles 4-year life. Both
ce whichever type of car you choose with the same thing when it runs out, again
a cost of capital of 12 percent, which one should you choose? (LG12-7)
2
$
$

+
+

+
+

(1,200) $
(650) $

(1,200)
(650)

(1,200.00)
1.12^2

(956.63)

(650.00)
1.12^2

(518.18)

-650

(1,200.00)
1.12^3

(854.14)

(650.00)
1.12^3

(462.66)

(650.00)
1.12^4

(413.09)