A Trucking Company Evaluates Its Fleet of Vehicles

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The Answer is First it is necessary to calculate the depreciation rate d as follows:
d = 1 -

First it is necessary to calculate the depreciation rate d as follows: d = 1 - = 0.1 or 10%. The economic life is associated with the minimum Equivalent Annual Cost (EAC). EAC is calculated in the following table: Salvage value in year N = BV(N)= P(1 - d)N Annual maintenance cost AMC in year N = AMC(N)= AMC(1)× (1 + 0.2)N. And we know that the maintenance cost in year 1 was 1000/1.22 = $694 Equivalent Annual Cost (Operating)for a lifetime of N years is EAC(operating, N)= × (A/P, i, N) Equivalent Annual Cost (Capital)in any given year N is EAC(capital, N)= (P - S)× (A/P, i, N)+ Si The Equivalent Annual Cost is EAC (N)= EAC(operating, N)+ EAC(capital, N) where BV is the book value, P is the purchase price, S is the salvage value and i is the MARR. From the table, the economic life of the van is at least 5 years.

= 0.1 or 10%. The economic life is associated with the minimum Equivalent Annual Cost (EAC). EAC is calculated in the following table:

Salvage value in year N = BV(N)= P(1 - d)N
Annual maintenance cost AMC in year N = AMC(N)= AMC(1)× (1 + 0.2)N. And we know that the maintenance cost in year 1 was 1000/1.22 = $694
Equivalent Annual Cost (Operating)for a lifetime of N years is
EAC(operating, N)=

× (A/P, i, N)
Equivalent Annual Cost (Capital)in any given year N is
EAC(capital, N)= (P - S)× (A/P, i, N)+ Si
The Equivalent Annual Cost is
EAC (N)= EAC(operating, N)+ EAC(capital, N)
where BV is the book value, P is the purchase price, S is the salvage value and i is the MARR.
From the table, the economic life of the van is at least 5 years.

A Trucking Company Evaluates Its Fleet of Vehicles

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A Trucking Company Evaluates Its Fleet of Vehicles

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