The Stark County Executives Are Considering the Purchase of New

Multiple Choice

The Stark County executives are considering the purchase of new 130 hp bulldozer and are comparing two models: the BEHEMOTH and the GOLIATH. The BEHEMOTH bulldozer costs $130,000, with a projected annual operating and maintenance cost of $31,000 and a salvage value $15,000 after 7 years. The GOLIATH model costs $175,000, with a projected annual operating and maintenance cost of $22,000 and a salvage value of $21,000 after 7 years.
-Calculate the net present value of the BEHEMOTH compressor and the net present value of the GOLIATH compressor, with the cash flows discounted annually at 12%. Which model should be purchased?

A) BEHEMOTH
B) GOLIATH
C) Either one can be purchased.
D) Neither, since both will incur enormous loss.
E) Need additional information to decide