The Penang Touring Company (PTC) purchased 20 tour buses 3 years ago for $98,000 each, and the

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Question:

The Penang Touring Company (PTC) purchased 20 tour buses 3 years ago for $98,000 each, and the current market value is $10,000. The president plans to contract for a major overhaul at a cost of $18,000 each. The president also estimates the following for each vehicle; additional life of 7 years once the overhauls are complete, revised annual operating costs of $6,000, and $8,000 salvage value each

However, the vice president for operating proposes a replacement with 25 new smaller touring buses, at a price of $75,000 each. The vice president also estimates the annual operating cost to be $2000 per year per bus. The new buses will last for 13 years and have a final salvage value of $5000 each it sold to charity organizations

If the management wants to make 12% per year on its investment, determine whether the president's overhaul plan or the vice president's plan is more economical [20 marks)

**The answer should contain the cash flow chart,present worth analysis and explanation on the time value analysis.For example formulas like ''PW = PW (Cash in) –PW (Cash out)'',''PW (20%) = 8000 (P/A, 20%, 5) +5000 (P/F, 20%, 5)-25,000''.Should be used to justify the answer.