Ten years ago, Johnson Recovery purchased a wrecker for $330,000 to move disabled 18-wheelers. He received a salvage value of $25,000 after 10 years of use. During this 10-year period, his average annual revenue totaled $60,000. a) Did he recover his investment at 12% per year return? In other words, does the Annual Equivalent Value of the benefits exceed the Capital Recovery cost at an interest rate of 12%? b) Suppose Johnson moves, on average, 250 disabled 18-wheelers each year. What is his average equivalent benefit/cost per vehicle moved? c) Now, incorporate annual operating and maintenance costs into your analysis. If the annual O&M cost was $5,000 the first year and increased by a constant 10% per year, what is the annual equivalent worth at 12% per year?

Ten years ago, Johnson Recovery purchased a wrecker for $330,000 to move disabled 18-wheelers. He received a salvage value of $25,000 after 10 years of use. During this 10-year period, his average annual revenue totaled $60,000. a) Did he recover his investment at 12% per year return? In other words, does the Annual Equivalent Value of the benefits exceed the Capital Recovery cost at an interest rate of 12%? b) Suppose Johnson moves, on average, 250 disabled 18-wheelers each year. What is his average equivalent benefit/cost per vehicle moved? c) Now, incorporate annual operating and maintenance costs into your analysis. If the annual O&M cost was $5,000 the first year and increased by a constant 10% per year, what is the annual equivalent worth at 12% per year?

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

Ten years ago, Johnson Recovery purchased a wrecker for $330, 000 to move
disabled 18-wheelers. He received a salvage value of $25,000 after 10 years of use. During this
10-year period, his average annual revenue totaled $60,000.
a) Did he recover his investment at 12% per year return? In other words, does the Annual
Equivalent Value of the benefits exceed the Capital Recovery cost at an interest rate of 12%?
b) Suppose Johnson moves, on average, 250 disabled 18-wheelers each year. What is his average
equivalent benefit/cost per vehicle moved?
c) Now, incorporate annual operating and maintenance costs into your analysis. If the annual
O&M cost was $5,000 the first year and increased by a constant 10% per year, what is the
annual equivalent worth at 12% per year?

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