A consulting engineering firm is considering two models of SUVs for the company principals. A GM model will have a first cost of $36,000, an op­erating cost of $4000, and a salvage value of $15,000 after 3 years. A Ford model will have a first cost of $32,000, an operating cost of $3100, and also have a $15,000 resale value, but after 4 years. (a) At an interest rate of 15% per year, which model should the consulting firm buy? Con­duct an annual worth analysis. (b) What are the PW values for each vehicle?

What will be an ideal response?


(a) AWGM = -36,000(A/P,15%,3) – 4000 + 15,000(A/F,15%,3)
= -36,000(0.43798) – 4000 + 15,000(0.28798)
= $-15,448

AWFord = -32,000(A/P,15%,4) – 3100 + 15,000(A/F,15%,4)
= -32,000(0.35027) – 3100 + 15,000(0.20027)
= $-11,305

Purchase the Ford SUV

(b) PWGM = -15,448(P/A,15%,12)
= -15,448(5.4206)
= $-83,737

PWFord = -11,305(P/A,15%,12)
= -11,305(5.4206)
= $-61,280

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