A commercial vehicle is purchased for an acquisition cost of $300,000. The operating and maintenance costs (0&M) and trade in values in years 1,2, 3 and 4 of the life of the vehicle are shown in the Table. Calculate the economic life (the time when you should replace the vehicle to achieve lower cost/ year of ownership) and the equivalent annual cost for this replacement policy. Use discounted costs and a discount rate of 15% Year 1 2 3 4 O&M costs ($) 30000 45000 65000 117500 Trade in value ($) 235000 190000 160000 127500 Ref: This example is from Hastings (2010) Physical Asset Management, Springer. Replacement every 2 years, $133,140/yr Replacement every 4 years, $139,102/yr Replacement every 3 years, $130,364/yr Replacement every 3 vears. $30.000/vr

A commercial vehicle is purchased for an acquisition cost of $300,000. The operating and maintenance costs (0&M) and trade in values in years 1,2, 3 and 4 of the life of the vehicle are shown in the Table. Calculate the economic life (the time when you should replace the vehicle to achieve lower cost/ year of ownership) and the equivalent annual cost for this replacement policy. Use discounted costs and a discount rate of 15% Year 1 2 3 4 O&M costs ($) 30000 45000 65000 117500 Trade in value ($) 235000 190000 160000 127500 Ref: This example is from Hastings (2010) Physical Asset Management, Springer. Replacement every 2 years, $133,140/yr Replacement every 4 years, $139,102/yr Replacement every 3 years, $130,364/yr Replacement every 3 vears. $30.000/vr

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

How to get to the answer? Please show full working. Answer should be C) Replacement every 3 years, $130, 364/year. Hand written plz

A commercial vehicle is purchased for an acquisition cost of $300,000. The operating and maintenance costs (O&M) and trade in values in years 1,2, 3 and 4 of the life of the vehicle
are shown in the Table. Calculate the economic life (the time when you should replace the vehicle to achieve lower cost/ year of ownership) and the equivalent annual cost for this
replacement policy. Use discounted costs and a discount rate of 15%
Year
1
2
3
4
O&M costs ($)
30000
45000
65000
117500
Trade in value ($)
235000
190000
160000
127500
Ref: This example is from Hastings (2010) Physical Asset Management, Springer.
Replacement every 2 years, $133,140/yr
Replacement every 4 years, $139,102/yr
Replacement every 3 years, $130,364/yr
Replacement every 3 years, $30,000/yr

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