A consulting engineering firm’s CFO wants to purchase either Ford Explorers or Toyota 4Runners for company principals. The two models under consideration cost $30,900 for the Ford and $36,400 for the Toyota. When considering life-cycle costs, the AOC of the Explorer is expected to be $600 per year more than that of the 4Runner. The trade-in values after 3 years are estimated to be 50% of the first cost for the Explorer and 60% for the 4Runner. (a) What is the incremental ROR between the two vehicles? (b) Provided the firm’s MARR is 18% per year, which vehicle should it buy?
A consulting engineering firm’s CFO wants to purchase either Ford Explorers or Toyota 4Runners for company principals. The two models under consideration cost $30,900 for the Ford and $36,400 for the Toyota. When considering life-cycle costs, the AOC of the Explorer is expected to be $600 per year more than that of the 4Runner. The trade-in values after 3 years are estimated to be 50% of the first cost for the Explorer and 60% for the 4Runner. (a) What is the incremental ROR between the two vehicles? (b) Provided the firm’s MARR is 18% per year, which vehicle should it buy?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
A consulting engineering firm’s CFO wants to purchase
either Ford Explorers or Toyota 4Runners for
company principals. The two models under consideration
cost $30,900 for the Ford and $36,400 for
the Toyota. When considering life-cycle costs, the
AOC of the Explorer is expected to be $600 per
year more than that of the 4Runner. The trade-in
values after 3 years are estimated to be 50% of the
first cost for the Explorer and 60% for the 4Runner.
(a) What is the incremental ROR between the two
vehicles? (b) Provided the firm’s MARR is
18% per year, which vehicle should it buy?
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