A construction contractor needs to choose between two suppliers of dump trucks. Supplier 1 has an...

A construction contractor needs to choose between two suppliers of dump trucks. Supplier 1 has an initial cost of $125,000 and annual operating cost of $25, 000 per year. Supplier 2 has initial cost $160,000 and has annual operating cost of 20,000 per year. The truck fleet has the same 10-year life forecast Based on incremental rate of return (IROR) and a MARR of 8%, and which supplier of trucks should the contractor choose?

Please do not use excel.

Expert Solution

Calculation of Present Value of the maintaing the each truck
Year	Supplier 1 Truck	Supplier 2 Truck
Cash Flow	Discount Factor@8%	Discounted Cash Flows	Cash Flow	Discount Factor@8%	Discounted Cash Flows
A	B	C = 1/(1+8%)^A	*D = BC**	E	F = 1/(1+8%)^A	*G = EF**
0	-125000	1	-125000	-160000	1	-160000
1	-25000	0.925925926	-23148.14815	-20000	0.925925926	-18518.51852
2	-25000	0.85733882	-21433.47051	-20000	0.85733882	-17146.77641
3	-25000	0.793832241	-19845.80603	-20000	0.793832241	-15876.64482
4	-25000	0.735029853	-18375.74632	-20000	0.735029853	-14700.59706
5	-25000	0.680583197	-17014.57993	-20000	0.680583197	-13611.66394
6	-25000	0.630169627	-15754.24067	-20000	0.630169627	-12603.39254
7	-25000	0.583490395	-14587.25988	-20000	0.583490395	-11669.80791
8	-25000	0.540268885	-13506.72211	-20000	0.540268885	-10805.37769
9	-25000	0.500248967	-12506.22418	-20000	0.500248967	-10004.97934
10	-25000	0.463193488	-11579.8372	-20000	0.463193488	-9263.869762
Present Value			-292752.035			-294201.628

Present Value of Owning supplier 1 Truck is $292,752.04
Present Value of Owning supplier 2 Truck is $294,201.63
Therefore, Contractor should choose Supplier 1 of trucks

jeff jeffy answered 1 year ago

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A construction contractor needs to choose between two suppliers of dump trucks. Supplier 1 has an...

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