The purchase of a used pickup for $9,000 is being considered. Records for other

ID: 2426191 • Letter: T

Question

The purchase of a used pickup for $9,000 is being considered. Records for other vehicles show that costs for oil, tires, and repairs about equal the cost for fuel. Fuel costs are $990 per year if the truck is driven 10,000 miles. The salvage value after 5 years of use drops about 8 cents per mile per year. Find the equivalent uniform annual cost if the interest rate is 8%. How much does this change if the annual mileage is 15,000? 5,000? Assume maintenance costs vary proportionally with mileage.

Explanation / Answer

Solution :

10000 mile

15000 mile

5000 mile

EUAC OF INTIAL COST (9000 X 0.250456**)

2,254.11

O&M costs P.A

1,980.00

2,970.00

990.00

(990*2)

(1980*15000/10000)

(1980*5000/10000)

SALVAGE = 0.08*10000* (0.25045-.08)

136.37

annual cost of equipment

4,097.74

5,087.74

3,107.74

**r/1-(1+r)^-n = 0.08/1-(1.08)^-5

0.250456455