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Question: fast track ltd which operates a delivery service requires a...

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Fast Track Ltd, which operates a delivery service, requires a new van. It has received two quotes. Van M will cost S60,000 now, has a three year life and will cost S6,000 a year to operate. Van N will cost S90,000 now, has a four year life and will cost $8,000 a year to operate. Sales in the first year under both vans are expected to be $50,000, and will increase by 10% a year over the following 2 years with Van M and 15% a year over the following 3 years with Van N. The relevant discount rate is 7% per annum. Ignoring depreciation and taxes, calculate the AEB for each. Which van should the company purchase and why?

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