Question

A waste disposal company is considering the replacement of one of its aging trucks. The key parameters of the three trucks under scrutiny are provided below.
Parameters	Delta	Epsilon	Zeta
1. Initial Cost ($)	250,000	375,000	450,000
2. Revenues ($)	230,000 at EOY1 increasing by 2.5% annually thereafter	195,000 at EOY1 increasing by 3,000 annually thereafter	235,000 at EOY1 decreasing by 1% annually thereafter
3. Operating costs ($)	140,000 at EOY1 decreasing by 2,000 annually thereafter	125,000 at EOY1 decreasing by 2% annually thereafter	EOY1-EOY4 = 125,000; EOY5-EOY8 = 135,000 EOY9-EOY12 = 170,000 EOY13-EOY16 = 190,000
4. End-of-life salvage value ($)	-20,000	7,000	-20,000
5. Useful life (years)	4	8	16
EOY = End-of-year Industry Standard = 4 years MARR = 10%

9. Based on the simple payback method, Epsilon’s “project balance” after 2 years (rounded to the nearest $100) is

a) $-229,500; b) $-155,900; c) $-59,100; d) $98,800.

10. Based on the discounted payback method, Epsilon’s recovery period (to the nearest half or full year) is

a) 5.0; b) 6.0; c) 6.5; d) 7.5.

11. Based on the discounted payback method, Epsilon’s “project balance” after 3 years (rounded to the nearest $100) is

a) $-296,300; b) $-250,400; c) $123,400; d) $129,800.

12. Based on the simple payback method, Zeta’s recovery period (rounded to the nearest half or full year) is

a) 3.5; b) 4.0; c) 4.5; d) 5.5.

Hint: Delta's NFW = $81,900

Epsilon's NPW = $89,000

Zeta's NFW = $709,100

Answer 1