You and one of your classmates are considering setting up a prescription delivery servicefor local residents in Mount Pearl. In order to start the business you will need to purchasea car for $6000, which you expect you will be able to sell for $3000 at the end of every twoyears (you'll have to purchase a new equivalent car at that time). Insurance costs are $600for each six months of operation, starting immediately, and advertising costs (flyers,newspaper ads, etc.) are estimated to be $100 per month. The big question is how manycustomers you will have, but you are figuring on setting a fee of $2 per delivery, which willbe payable by your clients at the end of each month. Assuming a stable interest rate of8% per year, compounded monthly, what is the break-even number of deliveries permonth? (NOTE: All calculations should be performed using 4 significant figures.)Solution:Let D = the number of deliveries per month; % monthly interest is i = 8%/12 = 0.6667%{interest factors for 0.6667% are attached}Using the Capital Recovery Formula for the vehicle cost, set up an equation for theEquivalent Monthly Worth (EMW) of the project as:EMW = (Monthly Revenues) - (Monthly Costs)=($2. D)-(vehicle cost+ advertising cost + insurance cost)= ($2.D)-([(P-S)(A/P, I, N) + Si] + ad. cost + insurance cost)where the vehicle cost is: (P-S)(A/P, i, N) + Si= (6000-3000)(A/P, 0.6667%, 24) + 3000(0.006667)= (3000)(0.04523) +20= 135.69 + 20 = 155.69and the Monthly Costs are: (vehicle cost + ad. cost + insurance cost)= 155.69 + 100+600(A/P, 0.6667%, 6)= 255.69 + 600(0.17058) = 255.69 + 102.35 = 358.04Now the EMW = ($2. D) - (vehicle cost + ad. cost + insurance cost) = ($2D) - ($358)Next, we set the EMW equal to 0 and solve for D: 0 = 2D - 3582D = 358The break-even number of deliveries per month is D = 179.or: D= 358/2 = 179NOTE: The Maple TA solution shows a table of values and suggests plotting a curve or using linearinterpolation to come up with the solution to the EMW equation formed. However, we cancalculate the factors for (A/P, 1, 24) and (A/P, i, 6) to make this solution much easier. You and one of your classmates are considering setting up a prescription delivery service for local residents in Mount Pearl. Inorder to start the business you will need to purchase a car for $7,200 which you expect you will be able to sell for $3,600 at theend of every two years (you'll have to purchase a new equivalent car at that time). Insurance costs are $560 for each six monthsof operation, starting immediately, and advertising costs (flyers, newspaper ads, etc.) are estimated to be $110 per month.All calculations are performed using 4 significant figures.The big question is how many customers you will have, but you figuring on setting a fee of $2 per delivery, which will be payableby your clients at the end of each month.Assuming a stable interest rate of 6% per year, compounded monthly what is the break even number of deliveries per month?

Equivalent Annual Cost refers to the cost per year incurred in operating and maintaining a certain…

You and one of your classmates are considering setting up a prescription delivery service for local residents in Mount Pearl. In order to start the business you will need to purchase a car for $7,200 which you expect you will be able to sell for $3,600 at the end of every two years (you'll have to purchase a new equivalent car at that time). Insurance costs are $560 for each six months of operation, starting immediately, and advertising costs (flyers, newspaper ads, etc.) are estimated to be $110 per month. All calculations are performed using 4 significant figures. The big question is how many customers you will have, but you figuring on setting a fee of $2 per delivery, which will be payable by your clients at the end of each month. Assuming a stable interest rate of 6% per year, compounded monthly what is the break even number of deliveries per month?

You and one of your classmates are considering setting up a prescription delivery service for local residents in Mount Pearl. In order to start the business you will need to purchase a car for $7,200 which you expect you will be able to sell for $3,600 at the end of every two years (you'll have to purchase a new equivalent car at that time). Insurance costs are $560 for each six months of operation, starting immediately, and advertising costs (flyers, newspaper ads, etc.) are estimated to be $110 per month. All calculations are performed using 4 significant figures. The big question is how many customers you will have, but you figuring on setting a fee of $2 per delivery, which will be payable by your clients at the end of each month. Assuming a stable interest rate of 6% per year, compounded monthly what is the break even number of deliveries per month?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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