A company is deciding whether to keep its presently owned vehicle for business purposes or purchase a more environmentally friendly electric. A modest new car will cost $55,000 with annual operating and maintenance costs of $1400 per year with a year 5 salvage value worth 41% of its original purchase price (which is its estimated service life). The presently owned car is fairly new and has a resale value now of $30,000, $23,000 one year from now, $19,000 two years from now, and $16,000 three years from now. Its operating costs are expected to be $1800 this year, and costs increasing by $300 per year. The presently owned car will not be kept longer than 3 years. Use annual worth calculations with i=10% to determine the ESL of defender and whether it should be replaced with the challenger.

A company is deciding whether to keep its presently owned vehicle for business purposes or purchase a more environmentally friendly electric. A modest new car will cost $55,000 with annual operating and maintenance costs of $1400 per year with a year 5 salvage value worth 41% of its original purchase price (which is its estimated service life). The presently owned car is fairly new and has a resale value now of $30,000, $23,000 one year from now, $19,000 two years from now, and $16,000 three years from now. Its operating costs are expected to be $1800 this year, and costs increasing by $300 per year. The presently owned car will not be kept longer than 3 years. Use annual worth calculations with i=10% to determine the ESL of defender and whether it should be replaced with the challenger.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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