Question

5.000 snowplow the of use compared 12 years and have 9-64 Ithaca is considering a new $45.000 ve the city $400 per day of use co the existing one. It should last 12 ye resale value of $2500. (a) To obtain a 14% rate of return what is the mum number of days per year on averag have to be used. (b) Research the environmental impact of to What are other options? what is the mini rear on average it wil

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Answer 1

To evaluate the investment of the new snowplow, let X be the average amount of saving per a year as the new snowplow is used. Consider the average amount of saving as an annuity for the next 12 years, with the discount rate of 14%. PV = 45,000 - 2,500/1.14^(-12) PV =$44,481.1 Thus, in order to obtain the rate of return of 14%, PV of the annuity must equal $44,481.1 That is, 44,481.1= (X/14%) x [ 1 - 1.14^(-12)] X = $7858.44 Since one day use would save Ithaca $400, to achieve the targeted saving of $7858.44, the city has to use the snowplow for at least = 7858.44/400 = 20 days per year b) The environmental impacts are: • Increase in in water salinity contamination of public drinking waters • Slow killing of trees and plants. • Other options which are more environment-friendly are Cheese brine, Sand, Urea, Beet molasses