Bob Tate is the director of strategy for a small truck delivery company. The company operates...

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Bob Tate is the director of strategy for a small truck delivery company. The company operates a fleet of 100 trucks. Of these, 36 trucks will need to be replaced this year. Bob has two choices, either diesel or green trucks. The following are the facts for each possibility: For EACH diesel truck: Cost = $175K; life, 3 years (the trucks lose value quickly after 3 years of operations as the mileage reaches 200K); salvage value at end of three years, $50K; annual operating costs, $90K. For EACH green truck: Cost = $220K; life, 4 years; salvage value at end of four years, $100K; annual operating costs, $75K. Which choice should Bob make, diesel or green if the cost of capital is 10%; you may assume that the time period covered by this decision is 12 years, and you can ignore the other 64 of the 100 trucks in the fleet? (Ignore taxes, and ignore diversification.) Bob Tate is the director of strategy for a small truck delivery company. The company operates a fleet of 100 trucks. Of these, 36 trucks will need to be replaced this year. Bob has two choices, either diesel or green trucks. The following are the facts for each possibility: For EACH diesel truck: Cost = $175K; life, 3 years (the trucks lose value quickly after 3 years of operations as the mileage reaches 200K); salvage value at end of three years, $50K; annual operating costs, $90K. For EACH green truck: Cost = $220K; life, 4 years; salvage value at end of four years, $100K; annual operating costs, $75K. Which choice should Bob make, diesel or green if the cost of capital is 10%; you may assume that the time period covered by this decision is 12 years, and you can ignore the other 64 of the 100 trucks in the fleet? (Ignore taxes, and ignore diversification.)

Answer rating: 100% (QA)

Answer Calculation of PV of cost of diesel truck Year Initial cost Operating Cost Salv... View the full answer