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A company is considering purchasing a fleet of delivery vans which are available with either a diesel or gasoline fueled motor. The gasoline powered van has an initial price of $29,750, the diesel powered one costs $32,250. Both vehicles have a salvage value of $5,000 after 5 years.

The fuel economy of the diesel van is 17MPG, the gasoline powered van achieves 12.5MPG. Both vehicles have a salvage value of $5,000 after 5 years. Both gasoline and diesel are available at $3.59 per gallon. The company uses 20% for MARR (Minimal Accepted Rate of Return).

If the company plans to use the vans to run 75,000 miles per year, what is the IRR (Incremental Rate of Return) on the incremental investment?

Econometrics, Economics

  • Category:- Econometrics
  • Reference No.:- M9494306

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