You are considering the purchase of a new truck which will be required to travel 50,000
miles per year. Two suitable models are available, details of which are as follows:
● the Kam, having a life of 4 years and a price of £20,000; the running cost is initially 20p per
mile but this figure will rise by 5p per mile for each year the truck is in service; a new engine
will need to be fitted at a cost of £5,000 after the truck has been in service for 3 years;
● the Tru, having a life of 6 years and a price of £35,000; the running cost is initially 15p
per mile but this will rise by 3p per mile for each year the truck is in service.
The cost of capital is 12 per cent.
Explain which truck (the Kam or the Tru) should be purchased.
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