Question

1. We have three options in replacing our fleet of vehicles. Option one is to use high-end vehicles that cost $85,000 dollars, require maintenance of $1,000 per year and have a salvage value of $60,000 after five years. Option two is to use mid-value vehicles that cost $65,000, require $2,000 in maintenance each year and have a salvage value of $50,000 after four years. Option three is to use low-value vehicles that cost $40,000, require maintenance of $3,000 per year and can be sold for $25,000 after three years of usage. Using an 6% cost of money please calculate the equivalent annual cost/charge for each option and recommend the best financial option. Assume year-end cash flows for simplicity.

Equivalent annual charge for the high-end option_________

Equivalent annual charge for the mid-value option_________

Equivalent annual charge for the low-value option_________

Which option should be chosen? _____________

can you show in excel

Answer 1

Hence

Equivalent annual charge for the high-end option = $10535.05

Equivalent annual charge for the mid-value option= $ 9328.89

Equivalent annual charge for the low-value option= $10111.68

We choose the option having least equivalent annual charge , hence mid value option having lowest equivalent annual charge and we choose the mid value option.