The purchase of a used pick-up truck for $9,000 is being considered. Records for other vehicles show that costs for oil, tires, and repairs roughly equal the cost for fuel. Fuel costs are $990 a year if the truck is driven 16,000 km. The salvage value after five years of use drops by $0.05 per km. Find the equivalent uniform annual cost if the discount rate is 8%. How much does this change if the annual mileage is 24,000 km? 8,000 km? Assume that, drop in Salvage Value is based on total kilometers driven, rather than the annual distance driven.

The purchase of a used pick-up truck for $9,000 is being considered. Records for other vehicles show that costs for oil, tires, and repairs roughly equal the cost for fuel. Fuel costs are $990 a year if the truck is driven 16,000 km. The salvage value after five years of use drops by $0.05 per km. Find the equivalent uniform annual cost if the discount rate is 8%. How much does this change if the annual mileage is 24,000 km? 8,000 km? Assume that, drop in Salvage Value is based on total kilometers driven, rather than the annual distance driven.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter4: Extent (how Much) Decisions

Section: Chapter Questions

Problem 4.4IP

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