Stritch operates a fleet of vans and is considering whether to replace the vehicles on a L or 2 year cycle. Each vehicle costs €72,000. The following operating costs per vehicle for each year and the resale value at the end of each year are as follows: 17. Year 1 Year 2 € € Operating costs Resale value 7,200 20,000 10,400 12,000 The cost of capital is 10% per annum. What is the equivalent annual cost of replacing the vehicles every two years?

Stritch operates a fleet of vans and is considering whether to replace the vehicles on a L or 2 year cycle. Each vehicle costs €72,000. The following operating costs per vehicle for each year and the resale value at the end of each year are as follows: 17. Year 1 Year 2 € € Operating costs Resale value 7,200 20,000 10,400 12,000 The cost of capital is 10% per annum. What is the equivalent annual cost of replacing the vehicles every two years?

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

17.
Stritch operates a fleet of vans and is considering whether to replace the vehicles on a
1 or 2 year cycle. Each vehicle costs €72,000. The following operating costs per
vehicle for each year and the resale value at the end of each year are as follows:
Year 1
Year 2
€
€
Operating costs
Resale value
7,200
20,000
10,400
12,000
The cost of capital is 10% per annum.
What is the equivalent annual cost of replacing the vehicles every two years?
€44,233
Є34,000
€46,000
€61,200
A
B
C
D
18.
If a machine with annual running costs of €200,000 was diverted from producing
output selling for €100,000 to producing a special-order worth €140,000, what would
be the relevant costs of what has happened?
€340,000
€200,000
€100,000
€40,000
A
B
C
D

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