A contractor is trying to decide between a gasoline or a diesel bulldozer engine

Question

A contractor is trying to decide between a gasoline or a diesel bulldozer engine. The gasoline engine will cost $2,000 and have annual maintenance cost of $200. It will consume $7.20 per hour worth of fuel to operate. It will have a life of 5 years with a salvage value of $300. The diesel engine can be purchased for $2800 and will require $240 annually to maintain. The diesel engine will have a life of 7 years with a salvage value of $230. It will cost $6.60 per hour worth of fuel to operate. How many hours would the bulldozer have to operate for the gasoline and diesel engine options to be equally attractive at an interest rate of 12% 119 268 172 56 205 84

Explanation / Answer

Answer: The bull dozer has to operate for 205.22 hours annually, to be equally attractive under both options:

The calculations are given below:

gasoline diesel cost $2,000 $2,800 salvage value $300 $230 life   5 years 7 years amc $200 $240 fuel cost per hour $7.20 $6.60 The EAC of the gasoline option                   [2000-300*pvif(12,5)+200*pvifa(12,5)+h*7.2*pvifa(12,5)]/pvifa(12,5) [2000-300*0.5674+200*3.6048+h*7.2*3.6048]/3.6048 [2000-170.22+720.96+25.95456h]/3.6048 707.60+ 7.2h …..(1) The EAC of the diesel option                   [2800-230*pvif(12,7)+240*pvifa(12,7)+h*6.6*pvifa(12,7)]/pvifa(12,7) [2800-230*0.4523+240*4.5638+h*6.6*4.5638]/4.5638 [2800- 104.03+1095.31+30.12h]/4.5638 830.73+6.6h ……(2) 830.73+6.6h=707.6+7.2h 123.13 = 0.6h 205.22 = h

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