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A company is considering the purchase of a fleet of 200 trucks and has a choice between diesel and gasoline powered trucks. The gasolilne powered truch has an initial cost of $47,000 and a fuel economy of 8 MPG, the diesel powered truck has an initial cost of $50,000 and a fuel economy of 12.2 MPG. Gasoline sells for $2.29 and diesel for $2.39 a gallon. The price of fuel is expected to increase 15% per year. The company plans to use the trucks for 4 years, at which time both models will have a salvage value of $7,000. The company uses 14% for MARR.

A. what is the breakeven point in miles per year for the two alternatives? On a graph plot the cost comparison as a function of miles per year.

B. If the trucks are operated 80,000 miles per year, what is the incremental rate of return on the purchase of the diesel trucks?

C. The diesel powered trucks are depreciated on a 5 year MACRS. Will the company have a capital gain or loss if it disposes of the trucks after 4 years at the cited salvage value and what is the total loss or gain?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92367396

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