Question

We Care Transportation provides local transportation for individuals with special needs in the Western New York area. They are considering purchasing 10 wheel-chair accessible vans that can seat up to 4 passengers each. Each van will cost $63,450 each to purchase. Adapting these vans for wheelchair use will cost 12% of the total purchase price. We Care will hire 10 additional drivers (one per van) at a rate of $15 per hour. They anticipate each driver/van working 8 hours per day for 260 days each year for each of the next 10 years. Additionally, they anticipate spending $4,000 per van each year to keep their fleet in good working condition. We Care will use these new vans for the next 10 years, after which time they will see the donate the vans to local charitable organizations. They anticipate generating $46,000 per van for each of the next 10 years. They estimate the monetary value of this donation to be 15% of the total original cost. Should we Care proceed with this project? Use an annual equivalent worth analysis approach to answer this question and assume that we care's MARR = 7%. O AYes-We Care should expect a profit of $445,477.58 each year O B No- We Care will have a loss of $14,522.42 each year O CYes-We Care should expect a profit of $14,522.42 each year O D No - We Care will have a loss of $93,477.58 each year

Answer 1

Price of van = $ 63,450

Price with wheel chair = $ 63,450(1.12) = $ 71,064

Driver charges per year = 10*15*8*260 = $ 312,000

Maintenance cost per year = $ 40,000

Income per year = $ 460,000

Salvage value = 0.15*63450*1.12*10 = $ 106,596

AW = -71064*10(A/P,7%,10) + (460,000-312,000-40,000) +106,596 (A/F,7%,10)

AW = -710,640*0.1424 + 108,000 + 106,596*0.0724

AW = $ 14,522.41

Option C. Yes - we care should expect a profit of $ 14,522.42 each year.

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