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Calvic Co services custom cars and provides its clients with a courtesy car while servicing is taking place. It has a fleet of 10 courtesy cars which it plans to replace in the near future. Each new courtesy car will cost $15,000. The trade-in value of each new car declines over time as follows:

Age of courtesy car (years)  1 2 3
Trade-in value ($/car)  11,250 9,000 6,200

Servicing and parts will cost $1,000 per courtesy car in the first year and this cost is expected to increase by 40% per year as each vehicle grows older. Cleaning the interior and exterior of each courtesy car to keep it up to the standard required by Calvic's clients will cost $500 per car in the first year and this cost is expected to increase by 25% per year.

Calvic Co has a cost of capital of 10%. Ignore taxation.

Requirements:

Using the equivalent annual cost method, calculate whether Calvic Co should replace its fleet after one year, two years, or three years.

Marks: 12

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Rakhi Gupta
11/11/2020 - 14:35

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Rakhi Gupta
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Rakhi Gupta
09/18/2020 - 20:04

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Abhro Gourab Das
07/18/2020 - 21:26

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tafara nkosana ...
06/28/2020 - 13:38

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tafara nkosana ...
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Apurba nandy's picture
Apurba nandy
03/02/2020 - 19:43

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Md Ishtiak Isty
02/23/2020 - 21:54

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MD. Ohidur Rahman
02/23/2020 - 21:55

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Md. Shadequl Is...
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Md. Tariful Mur...
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Nafeez Imtiaz H...
02/23/2020 - 21:51

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Apurba nandy's picture
Apurba nandy
12/04/2019 - 13:25

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Apurba nandy
12/04/2019 - 13:06

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Tanzeer UL Alaam
11/25/2019 - 23:29

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