Scenario: You need to purchase a new staff As a public agency and because Its go

Question

Scenario: You need to purchase a new staff As a public agency and because Its good business, you want to look at multiple options for purchase so that You know you are making the best use of funds. You review vehicle records for the current staff truck and find that the average per year mileage is 32,000. Gas averages $3.30 per gallon. You compare two options. A) A one-ton crew cab pick-up track that gets 8 miles to the gallon. B) A smaller SUV hybrid that gets 24 miles to the gallons. Determine the following 1) What will be the museum save in annual fuel expense by purchasing the hybrid vs. the one-ton vehicle? 2) If the museum deposits the monthly fuel savings at the end of each month into an annuity that pays 6.8% compounded monthly, how much will the museum have saved at the end of 5 years? 3) If the museum takes the savings from the annuity after 10 years and divided it up between 12 schools for science grands, how much would each school get?

Explanation / Answer

1) option a : 8 miles / gallon

option b : 24 miles/gallon

option a : no. of gallons consumed =32000/8 = 4000 gallons

fule cost = $ 3.30*4000

option b: no. of gallons consumed =32000/24 = 1333.33 gallons

fuel cost = $ 1333.33*3.30

Fuel saving between the two option = 3.30*4000 - 1333.33*3.30 = $ 8800

2) monthly saving = 8800/12 = $ 733.33 ; i = 6.8% ; n = 5*12 = 60

FV = PMT[1 - (1 +r)^-n]/r

Future Value of annuity = $52,526.30

3) So, the future value for monthly paymeny is calculated for 10 yrs:

FV = $126,252.23

This is divided among 12 schools

each school would get = $126,252.23/12 = $10521.02

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