Question

8. A construction contractor Supplier 1 has an initial cost of $125. Supplier 2 has initial cost $160,000 won contractor needs to choose between two suppliers of dump trucks. as an initial cost of $125,000 and annual operating cost of $25,000 per year. - has initial cost $160,000 and has annual operating cost of 20,000 per year. The truck fleet has the same 10 year life forecast Based on incremental rate of return FROR) and a MARR of 8%, and which supplier of trucks should the contractor choose? "

Answer 1

Year	Supplier 1	Supplier 2	Incremental
0	-1,25,000	-1,60,000	-35,000
1	25,000	20,000	-5,000
2	25,000	20,000	-5,000
3	25,000	20,000	-5,000
4	25,000	20,000	-5,000
5	25,000	20,000	-5,000
6	25,000	20,000	-5,000
7	25,000	20,000	-5,000
8	25,000	20,000	-5,000
9	25,000	20,000	-5,000
10	25,000	20,000	-5,000

Year	Supplier 1	At 8%	Total	Supplier 2	At 8%	Total
0	-1,25,000	1	-1,25,000	-1,60,000	1	-1,60,000
1	25,000	0.9259	23,148	20,000	0.9259	18,518
2	25,000	0.8573	21,433	20,000	0.8573	17,146
3	25,000	0.7938	19,845	20,000	0.7938	15,876
4	25,000	0.7350	18,375	20,000	0.7350	14,700
5	25,000	0.6805	17,013	20,000	0.6805	13,610
6	25,000	0.6301	15,753	20,000	0.6301	12,602
7	25,000	0.5834	14,585	20,000	0.5834	11,668
8	25,000	0.5402	13,505	20,000	0.5402	10,804
9	25,000	0.5002	12,505	20,000	0.5002	10,004
10	25,000	0.4631	11,578	20,000	0.4631	9,262
		Total :	42,738			-25,810

Conclusion

Supplier 1 should be selected as it has positive result and is higher when compared to Supplier 2.