Question

A fleet manager must choose between two trucks to purchase for a company's fleet. The company uses an interest rate of 10% and will keep either truck for 5 years. Truck A costs $29,000 and has a market value of $15,000 after 5 years. Truck B costs $34,000 and has a market value of $21,000 after 5 years. Determine the equivalent uniform annual cost (EUAC) for the truck the fleet manager should buy. Express your answer as a positive number is $ to the nearest $10..

Answer 1

The fleet manager should choose Truck A as it has a lower equivalent uniform annual cost (EUAC) of $5,968 compared to Truck B.

Step-by-step explanation:

To determine the equivalent uniform annual cost (EUAC) for the truck the fleet manager should buy, we need to consider the initial cost, the salvage value, and the interest rate. The EUAC formula is:

EUAC = (Initial Cost - Salvage Value) + (Annual Maintenance Cost + Annual Fuel Cost + Annual Repair Cost) / (1 + Interest Rate)^(Number of Years)

Let's calculate the EUAC for each truck:

Truck A:

EUAC = (29000 - 15000) + (0 + 0 + 0) / (1 + 0.10)^5 = $5,968

Truck B:

EUAC = (34000 - 21000) + (0 + 0 + 0) / (1 + 0.10)^5 = $7,979

Therefore, the fleet manager should buy Truck A as it has a lower EUAC of $5,968.