Answered: As a Project Engineering had been…

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

As a Project Engineering had been tasked to make an analysis and to recommend to your
company on the economic justification on option to purchase a new or 3-year old used truck to
be used for the company's project construction activities as well as providing some rental
business for three years. As the truck is not used for the whole time, 5-days a month it is being
rented out. The new truck having better fuel efficiency and lower maintenance cost. Based on
your data gathering, you have this information derived for the analysis. (Refer to image attached)

d) Based on the Minimum Acceptable Rate of Return, if the company hurdle rate is 20 %,
would you choose a new lorry or used lorry and why?

No.
Description
Unit
New
3-Year used
5 years
warranty
RM 170,000
RM 8,000
RM 1,000
Truck specification
unit
No warranty
Cost of the truck
Unit
RM 100,000
Save on the lorry rental from 3rd party
Estimated income from rental
Monthly
Daily
Per 6
RM 8,000
RM 1,000
Estimated maintenance cost plus
5.
inspection by Puspakom and DOSH
months
none
RM 1,000
Estimated Operator and fuel cost
Dispose value at end of the project
construction, 3 years
Monthly
RM 7,000
RM 9,000
Unit
RM 65,000
RM 40,000
234

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