A delivery car had a first cost of $30,000, an annual operating cost of $12,000, and an estimated $4000 salvage value after its 6-year life. Due to an economic slowdown, the car will be retained for only 2 years and must be sold now as a used vehicle. (a) At an interest rate of 10% per year, what must the market value of the 2-year-old vehicle be in order for its AW value to be the same as the AW for a full 6-year life cycle? (b) Compare your answer in (a) with the first cost and expected salvage after 6 years. Is the required market value a reasonable one, in your opinion?
What will be an ideal response?
A delivery car had a first cost of $30,000, an annual operating cost of $12,000, and an
estimated $4000 salvage value after its 6-year life. Due to an economic slowdown, the car will
be retained for only 2 years and must be sold now as a used vehicle.
(a) At an interest rate of 10% per year, what must the market value of the 2-year-old vehicle
be in order for its AW value to be the same as the AW for a full 6-year life cycle?
(b) Compare your answer in (a) with the first cost and expected salvage after 6 years. Is the
required market value a reasonable one, in your opinion?
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