A company’s technicians do many service calls to their customers’ sites and have

Question

A company’s technicians do many service calls to their customers’ sites and have been using their own cars, for which the company reimburses them at a rate of $0.56 per mile. A technician travels an average of 35,000 miles per year. The company is analyzing a proposal to provide the field technicians with company cars. The expenses per car would involve $27,000 new car purchase price, three year service life, salvage value of $9,000, yearly taxes & insurance $1,300, and $0.28 operating & maintenance costs per mile.

a) If the interest rate is 8%, what is the equivalent cost per mile for the new company cars option?

b) What should the company decide (continue using personal cars or purchase company cars)?

Explanation / Answer

a) Calculation of Equivalent annual cost per mile

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