Projects with Different Lives: Your Firm Is Deciding Whether to Purchase

Multiple Choice

Projects with different lives: Your firm is deciding whether to purchase a durable delivery vehicle or a short-term vehicle. The durable vehicle costs $25,000 and should last five years. The short-term vehicle costs $10,000 and should last two years. If the cost of capital for the firm is 15 percent, then what is the equivalent annual cost for the best choice for the firm? (Round final answer to nearest whole dollar.)

A) $5,000, either vehicle
B) $5,000, short-term vehicle
C) $6,151, short-term vehicle
D) $7,458, long-term vehicle