Cobb County learned that by buying larger garbage trucks it could reduce labor cost for garbage removal

Cobb County learned that by buying larger garbage trucks it could reduce labor cost for garbage removal

Question 2

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?