A truck was purchased four years ago for $65,000 to move raw materials and finished goods between a production facility and four remote warehouses. This truck (the defender) can be sold at the present time (EOY O) for $40,000 and replaced by a new truck (the challenger) with a purchase price of $68,000.

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Chapter1: Making Economics Decisions
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A truck was purchased four years ago for $65,000 to move raw materials and finished goods between a production facility and four
remote warehouses. This truck (the defender) can be sold at the present time (EOY 0) for $40,000 and replaced by a new truck (the
challenger) with a purchase price of $68,000.
EOY(T)
1
2
3
4
Defender
AOC
$8500
10500
14000
18000
MV(T)
$30,000
20,000
11,000
4,000
29,363 dollars/yr.
a. What is the absolute value of the TAW for the defender at EOY 2?
41,416.20 dollars/yr.
EOY(T)
1
Because of changing demand for the product produced at the facility, the owners of the firm plan to cease operations in 3 years.
Given the above cost information and an MARR of 10% APR, answer the following.
b. What is the absolute value of the TAW for the challenger at EOY 2?
2
3
4
(If required, answer these questions to the nearest dollar. Use percentages to 3 decimal places. Algebraic signs matter.)
Challenger
AOC
$5500
6800
7400
9700
MV(T)
$56,000
44,000
34,000
22,000
Transcribed Image Text:A truck was purchased four years ago for $65,000 to move raw materials and finished goods between a production facility and four remote warehouses. This truck (the defender) can be sold at the present time (EOY 0) for $40,000 and replaced by a new truck (the challenger) with a purchase price of $68,000. EOY(T) 1 2 3 4 Defender AOC $8500 10500 14000 18000 MV(T) $30,000 20,000 11,000 4,000 29,363 dollars/yr. a. What is the absolute value of the TAW for the defender at EOY 2? 41,416.20 dollars/yr. EOY(T) 1 Because of changing demand for the product produced at the facility, the owners of the firm plan to cease operations in 3 years. Given the above cost information and an MARR of 10% APR, answer the following. b. What is the absolute value of the TAW for the challenger at EOY 2? 2 3 4 (If required, answer these questions to the nearest dollar. Use percentages to 3 decimal places. Algebraic signs matter.) Challenger AOC $5500 6800 7400 9700 MV(T) $56,000 44,000 34,000 22,000
a. What is the absolute value of the TAW for the defender at EOY 2?
29,363.2 dollars/yr.
b. What is the absolute value of the TAW for the challenger at EOY 2?
41,416.20 dollars/yr.
c. Given the study period, T is only 3 years, what is the best economic choice for the firm?
O Keep the defender for 2 years and replace it with the challenger for 1 year
O Replace the defender in 1 year and replace it with the challenger for 2 years
O Replace the defender now with the challenger for 3 years
O Keep the defender for 4 years
d. What is the basis for the choice in part c?
O TAW for the challenger in EOY 3 is $-25,456.
O PW for the best possible combination over the study period, T is about $-58,133.
O Likely FW of the best combination is greater than 0.
O None of these answers are correct.
Transcribed Image Text:a. What is the absolute value of the TAW for the defender at EOY 2? 29,363.2 dollars/yr. b. What is the absolute value of the TAW for the challenger at EOY 2? 41,416.20 dollars/yr. c. Given the study period, T is only 3 years, what is the best economic choice for the firm? O Keep the defender for 2 years and replace it with the challenger for 1 year O Replace the defender in 1 year and replace it with the challenger for 2 years O Replace the defender now with the challenger for 3 years O Keep the defender for 4 years d. What is the basis for the choice in part c? O TAW for the challenger in EOY 3 is $-25,456. O PW for the best possible combination over the study period, T is about $-58,133. O Likely FW of the best combination is greater than 0. O None of these answers are correct.
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