Question

Gateway Tours is choosing between two bus models. One is more expensive to purchase and​ maintain but lasts much longer than the other. ​ Gateway’s discount rate is​ 9%. It plans to continue with one of the two models for the foreseeable future. Based on the equivalent annual costs of​ each, shown​ below, which should it​ choose?   ​[Note: I have tried to make it easier for you to solve this problem. You do not need to do​ extra, unnecessary calculations merely to show me your​ work.] Model Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Old R ​ $0 ​ -$23 ​ -$23 ​ -$23 ​ -$23 ​ -$23 ​ -$23     S​ & S ​ $0 ​ -$21 ​ -$21 ​ -$21 ​ -$21 Which bus should Gateway Tours​ choose?   Give me the name of the bus that should be​ chosen, and the final numbers that justify your answer. Do not explain any concepts​ - I'm looking for an answer along the lines of​ "Choose _______________ because​ $____________ is better than​ $_________."

Answer 1

	Answer
a	Old R
	Year	Annual Cost	PVF@9%	PV
	0	$              -	1	0.00
	1	$      (23.00)	0.917431	-21.10
	2	$      (23.00)	0.84168	-19.36
	3	$      (23.00)	0.772183	-17.76
	4	$      (23.00)	0.708425	-16.29
	5	$      (23.00)	0.649931	-14.95
	6	$      (23.00)	0.596267	-13.71
	Equivalent Annual Cost	Present Value/ Annuity Factor
			(103.18)/(((1-(1.09)^-6))/0.09)
			-23.00
b	S&S
	Year	Annual Cost	PVF@9%	PV
	0	$              -	1	0.00
	1	$      (21.00)	0.917431	-19.27
	2	$      (21.00)	0.84168	-17.68
	3	$      (21.00)	0.772183	-16.22
	4	$      (21.00)	0.708425	-14.88
				-68.03
	Equivalent Annual Cost	Present Value/ Annuity Factor
			(68.03)/(((1-(1.09)^-4))/0.09)
			-21.00
	Select S&S Model beacause annual Cost $21 is better Than $23