“Cost-Benefit Analysis” Please respond to the following:
In a heavily debated City Council meeting, one year ago, Cobb County learned that by buying larger garbage trucks it could reduce labor cost for garbage removal. Note: All the dollar amounts below are in this year’s (present) dollars. The cost of the trucks today (one year later) is $400,000. The annual savings in this year’s dollars is $90,000. The trucks will last for four years and then will be sold for $100,000. The city can borrow money at a 7% discount rate to purchase the trucks. Inflation for the next four years is expected to average 3%. Assuming the cost and benefits are incurred at the end of the year, should the city buy the trucks?