Ashton Baxter, a fleet manager from ABC Truck Operation has compiled a set of estimated costs...
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Ashton Baxter, a fleet manager from ABC Truck Operation has compiled a set of estimated costs and salvage value for Truck Model A over the past few years of operation. The set of data compiled is shown below. The original purchase price of Truck Model A at year 0 is $112,000.00. ABC Truck Operation's financial policy states that the minimum return on investment is at a yearly effective interest rate of 12% compounded quarterly. Original purchase price at year 0: $ 112,000.00 vehicle (n) Life of Estimated End-of-Year Maintenance Cost ($) Years i. ii. iii. 1 2 3 4 5 6 7 8 9 10 8,000.00 8,000.00 12,000.00 12,000.00 12,000.00 18,000.00 18,000.00 18,000.00 Estimated Salvage Value if Sold in Year n ($) 95,000.00 78,000.00 67,000.00 60,000.00 54,000.00 50,000.00 45,000.00 35,000.00 27,000.00 20,000.00 Equivalent constant annual cost of owning and maintaining if Sold in Year n ($) 30,440.00 29,477.74 29,146.50 27,868.81 27,448.71 26,836.44 (iii) 27,020.73 27,235.90 27,293.12 Compute the yearly nominal interest rate for the minimum return on investment. (Provide your answer in percentage and to 2 decimal place) Draw the cash flow diagram for owning and maintaining Truck Model A for 7 years. (Truck Model A is sold at end of year 7) Compute the equivalent constant annual cost of owning and maintaining truck model A for 7 years. iv. Which year should Mr James replace the existing truck with a new truck of same model? Assume that the maintenance cost and salvage of the truck Model A for the different years of ownership does not change with time? Explain. Ashton Baxter, a fleet manager from ABC Truck Operation has compiled a set of estimated costs and salvage value for Truck Model A over the past few years of operation. The set of data compiled is shown below. The original purchase price of Truck Model A at year 0 is $112,000.00. ABC Truck Operation's financial policy states that the minimum return on investment is at a yearly effective interest rate of 12% compounded quarterly. Original purchase price at year 0: $ 112,000.00 vehicle (n) Life of Estimated End-of-Year Maintenance Cost ($) Years i. ii. iii. 1 2 3 4 5 6 7 8 9 10 8,000.00 8,000.00 12,000.00 12,000.00 12,000.00 18,000.00 18,000.00 18,000.00 Estimated Salvage Value if Sold in Year n ($) 95,000.00 78,000.00 67,000.00 60,000.00 54,000.00 50,000.00 45,000.00 35,000.00 27,000.00 20,000.00 Equivalent constant annual cost of owning and maintaining if Sold in Year n ($) 30,440.00 29,477.74 29,146.50 27,868.81 27,448.71 26,836.44 (iii) 27,020.73 27,235.90 27,293.12 Compute the yearly nominal interest rate for the minimum return on investment. (Provide your answer in percentage and to 2 decimal place) Draw the cash flow diagram for owning and maintaining Truck Model A for 7 years. (Truck Model A is sold at end of year 7) Compute the equivalent constant annual cost of owning and maintaining truck model A for 7 years. iv. Which year should Mr James replace the existing truck with a new truck of same model? Assume that the maintenance cost and salvage of the truck Model A for the different years of ownership does not change with time? Explain.
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Related Book For
Statistics For Business And Economics
ISBN: 9780538481649
11th Edition
Authors: David R. Anderson, Dennis J. Sweeney, Thomas A. Williams
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