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Caterpillar Company is considering to replace an old truck. The old truck can probably run...

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Finance

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Caterpillar Company is considering to replace an old truck. The old truck can probably run three more years, and will generate cash flows of $55,200 per year for next 3 years. The new truck will cost Caterpillar Company $320,000, and will generate cash flows of $140,400 per year for the next 6 years. If the real opportunit cost of capital is 14%, should Caterpillar Company replace the old truck now or should Caterpillar Company replace it 3 years later? Caterpillar Company should replace the truck now because the equivalent annual worth of the new truck is $58,109.60, larger than the annual cash flow generated from the old truck. Caterpillar Company should not replace the truck now because the equivalent annual worth of the new truck is $47,384.56, less than the annual cash flow generated from the old truck. Caterpillar Company should not replace the truck now because the equivalent annual worth of the new truck is $34,339.08, less than the annual cash flow generated from the old truck. Caterpillar Company should replace the truck now because the equivalent annual worth of the new truck is $87,066.67, larger than the annual cash flow generated from the old truck

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