The city council of Morristown is considering the purchase of one new fire truck

Question

The city council of Morristown is considering the purchase of one new fire truck. The options are Truck X and Truck Y. The purchase is to be financed by money borrowed at 15% per year. What is the conventional B-C ratio for Truck x? The appropriate financial data are as follows: Truck X Truck Y Capital Investment Maintenance cost per year Useful life Reduction in fire damage per year $52,000 $5,000 6 years $22,000 $70,000 $6,000 6 years $23,000 Click the icon to view the interest and annuity table for discrete compounding when the MARR is 15% per year. Choose the correct answer below A. The conventional B-C ratio for Truck X is 0.94 O B. The conventional B-C ratio for Truck X is 1.24 O C. The conventional B-C ratio for Truck X is 0.85 O D. The conventional B-C ratio for Truck X is 1.60 O E. The conventional B-C ratio for Truck X is 1.17

Explanation / Answer

Answer: E the conventional B-C ratio for truck X is 1.17

AW B (15%) = $22,000 = $22,000

AW C (15%) = $52,000 *(A/P,15%,6) + $5,000

=$52000*0.2642+$5000

= $18738.4

B-C =$22000/$18738.4 = 1.17

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