A suburban taxi company is considering buying taxis with diesel engines instead
ID: 2774287 • Letter: A
Question
A suburban taxi company is considering buying taxis with diesel engines instead of gasoline engines. The cars average 50,000 km a year
DIESEL:
Vehicle Cost: 13,000
Useful years in life: 3
Fuel cost per liter: 48 cents
Mileage in km/liter: 35
Annual Repairs: 300
Annual Insurance premium: 500
End of useful life resale value: 2,000
GASOLINE:
Vehicle Cost: 12,000
Useful years in life: 4
Fuel cost per liter: 51 cents
Mileage in km/liter: 28
Annual Repairs: 200
Annual Insurance premium: 500
End of useful life resale value: 3,000
Use an annual cash flow analysis to determine the more economical choice if interest is 6%
Explanation / Answer
Answer: Annual cost of Diesel Fuel =[$50000 km/35 km/litre]*$0.48 /litre=$685.71
Annual cost of gasoline =[$50000 km/28 km/litre]*$0.51/litre=$910.71
EUAC diesel = ($13,000 - $2,000) (A/P, 6%, 3) + $2,000 (0.06) + $685.71 fuel + $300 repairs + $500 insurance = $11,000 (0.3741) + $120 + $1,485.71 = $5720.81
EUAC gasoline = ($12,000 - $3,000) (A/P, 6%, 3) + $3,000 (0.06) + $910.71 fuel + $200 repairs + $500 insurance
=($9000*0.2886)+180+1610.71
=4388.11
The Gasoline is more economical
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