Need help with both questions. The Universal Postal Service is considefined theg
ID: 2765597 • Letter: N
Question
Need help with both questions.
The Universal Postal Service is considefined theg the possibility of putting wind deflectors on the tops of 500 of their long-haul trucks. Three types of deflectors, with the following characteristics, are being considered, using MARR = 10% per year. The table lists all costs per truck being outfitted. If 5% in drag reduction means 2% in fuel savings per mile, how many miles do the trucks have to be driven per year before the Windshear deflector is favored over the other deflectors? Over what range of miles driven per year is Air-Vantage the best choice? (Note: fuel cost is expected to be $4.00 per gallon, and the average fuel consumption is 5 miles per gallon without the deflectors). Consider the following two investment alternatives. Determine the maximum investment cost for B (shown as X in the table below) that will convince an investor to select Alternative B. Assume a hurdle rate of 10% per year, and other relevant data as shown in the following table. State clearly any assumptions that are necessary to support your answer. Assume infinite repeatability.Explanation / Answer
4) windshear blow by air vantage investment 1000 400 1200 drag reduction-% 20 10 25 maintenance $ 10 5 5 life in years 10 10 5 fuel cost per mile 0.800 0.800 0.800 % savings for drag 8 4 10 $ savings for drag 0.064 0.032 0.080 fuel cost per mile 0.736 0.768 0.720 with drag pvifa @ 10% 6.1446 6.1446 3.7908 Equivalent annual investment (investment/pvifa) 163 65 317 annual maintenance 10 5 5 annual costs without fuel 173 70 322 total cost for windshear = 173 + 0.736*x for blow by = 70 + 0.768*x for air vantage = 322+0.720*x where x = the no of miles driven per year windshear cost and blow by cost will be equal where 173+0.736*x = 70+0.768*x 103 = 0.032x x = 3218.75 miles beyond this distance windshear will be preferre to blow by. similarly windshear and air vantage cost will be equal where 173+0.736x = 322+0.720x 149 = 0.016 x = 9312.5 miles beyond this distance air vantage will be preferred to windshear. blow by and air vantage cost will be equal where 322+0.72x = 70+0.768x 252 = 0.048x x = 5250 miles beyond this distance, air vantage will be preferred to blow by Answers: The trucks have to be driven at least 3218.75 miles before the wind shear deflector is preferred over others. Air vantage is the best choice beyond 9312.5 miles. 5) A B investment 5000 X annual receipts 1500 1400 salvage 1900 4000 life 5 7 For B to be selected, its EANPV should be greater than that of A. [(1400*pvifa(10,7)+4000*pvif(10,7)-X]/pvifa(10,7) should be greater than [(1500*pvifa(10,5)+1900*pvif(10,5)-5000]/pvifa(10,5) (1400*4.8684+4000*0.5132-X)/4.8684 > (1500*3.7908+1900*0.6209-5000)/3.7908 (6815.76+2052.8-X)/4.8684 > (5686.2+1179.71-5000)/3.7908 8868.56 - X > 2396.33 X > 6472.23 So, if B is to be preferred X should be maximum $6472 Can be checked as below: A B investment 5000 6472 annual receipts 1500 1400 salvage 1900 4000 pvifa 3.7908 4.8684 pvif 0.6209 0.5132 pv annual receipts 5686.2 6815.76 pv salvage 1179.71 2052.8 NPV 1865.91 2396.56 EANPV 492 492 A B investment 5000 6473 annual receipts 1500 1400 salvage 1900 4000 pvifa 3.7908 4.8684 pvif 0.6209 0.5132 pv annual receipts 5686.20 6815.76 pv salvage 1179.71 2052.80 NPV 1865.91 2395.56 EANPV 492.22 492.06