The CFO of a consulting engineering firm is deciding between purchasing Ford Explorers and Toyota 4Runners for company principals. The purchase price for the Ford Explorer will be $31,000. Annual maintenance costs for the Explorer are expected to be $600 per year more than that of the 4Runner. The purchase price for Toyota 4Runners is 35,000 The trade-in values after 3 years are estimated to be 50% of the first cost for the Explorer and 60% for the 4Runner. (a)What is the incremental ROR between the two vehicles? (b) Provided the firm's MARR is 18% per year, which vehicle should it buy?
The CFO of a consulting engineering firm is deciding between purchasing Ford Explorers and Toyota 4Runners for company principals. The purchase price for the Ford Explorer will be $31,000. Annual maintenance costs for the Explorer are expected to be $600 per year more than that of the 4Runner. The purchase price for Toyota 4Runners is 35,000 The trade-in values after 3 years are estimated to be 50% of the first cost for the Explorer and 60% for the 4Runner. (a)What is the incremental ROR between the two vehicles? (b) Provided the firm's MARR is 18% per year, which vehicle should it buy?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Am. 101.
Transcribed Image Text:The CFO of a consulting engineering firm is deciding between purchasing Ford Explorers and Toyota 4Runners for
company principals. The purchase price for the Ford Explorer will be $31,000. Annual maintenance costs for the Explorer
are expected to be $600 per year more than that of the 4Runner. The purchase price for Toyota 4Runners is 35,000 The
trade-in values after 3 years are estimated to be 50% of the first cost for the Explorer and 60% for the 4Runner. (a)What is
the incremental ROR between the two vehicles? (b) Provided the firm's MARR is 18% per year, which vehicle should it
buy?
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