A public water utility is replacing its service trucks with more fuel-efficient vehicles. Two types of trucks are under consideration: Type 1 uses “start-stop” technology that turns the engine off when the vehicle comes to a halt in traffic or at a stop light. These trucks will get 22 miles per gallon of gasoline and will cost $27,000 to buy. At the end of the truck’s 5-year service life, it is expected to sell for $10,000. Type 2 trucks use a system called Variable Cylinder Management wherein the engine operates on fewer cylinders when the vehicle is cruising under light load conditions. These trucks will cost $29,500 and will get 25 miles per gallon. Their salvage value is expected to be $12,000 after 5 years. The trucks are driven an average of 21,000 miles per year and the wholesale price of gasoline is $4.00 per gallon. Which type of truck should the utility buy on the basis of an annual worth comparison at an interest rate of 6% per year?
A public water utility is replacing its service trucks with more fuel-efficient vehicles. Two types of trucks are under consideration: Type 1 uses “start-stop” technology that turns the engine off when the vehicle comes to a halt in traffic or at a stop light. These trucks will get 22 miles per gallon of gasoline and will cost $27,000 to buy. At the end of the truck’s 5-year service life, it is expected to sell for $10,000. Type 2 trucks use a system called Variable Cylinder Management wherein the engine operates on fewer cylinders when the vehicle is cruising under light load conditions. These trucks will cost $29,500 and will get 25 miles per gallon. Their salvage value is expected to be $12,000 after 5 years. The trucks are driven an average of 21,000 miles per year and the wholesale price of gasoline is $4.00 per gallon. Which type of truck should the utility buy on the basis of an annual worth comparison at an interest rate of 6% per year?
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