The office manager of an environmental engineering consulting firm was instructed to make an eco-friendly decision in

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The office manager of an environmental engineering consulting firm was instructed to make an eco-friendly decision in acquiring an automobile for general office use. He is considering a gasoline-electric hybrid or a gasoline-free, all-electric hatchback. The hybrid under consideration is GM's Volt, which will cost $35,000, will have a salvage value of $15,000 after 5 years, and will have a range of 40 miles on the electric battery, plus several hundred more miles when the gasoline engine kicks in. Nissan's Leaf, on the other hand, is a pure electric that will have a range of only 100 miles, after which its lithium ion battery must be recharged. The Leaf's relatively limited range creates a psychological effect known as range anxiety (RA), which has the company leaning toward purchasing the Volt. The Leaf can be leased for $349 per month after an initial $500 down payment. The accountant for the consulting firm told the office manager that the Leaf is the better economic option based on an evaluation she performed earlier. If the office manager purchases the Volt anyway (instead of leasing the Leaf), what is the monthly equivalent (AW value) of the extra amount of money the company will be paying to eliminate range anxiety? Assume the operating costs will be the same for both vehicles and the MARR is 0.75% per month.


Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...
MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...
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Engineering economy

ISBN: 978-0073376301

7th Edition

Authors: Leland Blank, Anthony Tarquin

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