Apiceline contractor can purchase a needed trug for $45,000. Its estimated Ife i

Question

Apiceline contractor can purchase a needed trug for $45,000. Its estimated Ife is 6 years, and it has no salvage value. Maintenance is estimated to be $1,700 per year. Operating expense is $60 per day. The contractor can hire a similar unt for $170 per day. MARR is F. Click here to access the TVM Factor Table Calculatur days How many days per yearmust the truck's serviras be needed such that the two alternatives are equally costly Camry all intovium calculations to 5 decoraal places and then remind your final maswer up to the nearest day. The tolerance is +4. Erme truck is needed for 100 days/year, should the contractor buy the truck or hire the smiler unt? L Determine the dollar amount of annual savings generated by using the prefered alternative rather than the nonpreferred. $L Carry all interwm calceolations to 5 decimal places and then rownd your final answer to the nearest dollar. The tolerance is 15.

Explanation / Answer

Initial cost of buying the truck = $ 45,000

EAC ( Investment) = 45000 / PVA 7%, 6 Years = 45000 / 4.76654 = 9441

PVA = [ 1 - (1.07)-6 / 0.07 = 4.76654

Total annual cost = 9441 + 1700 = 11,141

Question - 1

Indifference point (or) Two alternative with equal cost = Total fixed cost / ( Difference in variable cost per day)

= 11,141 / ( 170 - 60) = 11,141 / 110 = 101 days................... final answer

Question - 2

If the number of days of operation is likely to be morethan 100 days, then buying option is better otherwise contracting is a good option.

(a) So working for 100 days is less than the indifference point. So we should hire the truck

(b) Hiring cost for 100 days = 100 * 170 = 17000

Buying cost for 100 days = 100*60 + 11141 = 17141

Annual savings = 141 ..................final answer

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