Q1. A contractor plans to purchase a new truck for earthmoving operations. Two
models are equally acceptable. (3.5 marks)
a) Which truck would you recommend they purchase on economic grounds?
Conduct the analysis using all applicable method(s).
| | Model A | Model B |
|-----------------------|---------|---------|
| Purchase Price (S.R.) | 350,000 | 460,000 |
| Operating Cost (annual S.R.) | 9,000 | 7,000 |
| Salvage Value (S.R.) | 35,000 | 46,000 |
The expected life of each truck is 20 years and an interest rate of 10%.
b) If the contractor instead of buying a new truck, he received a bid from a
dealer to replace one of the old trucks. Should the company replace it?
Conduct the analysis using all applicable method(s).
| | Old Truck | New Truck |
|-----------------------|-----------|-----------|
| Market Value (S.R.) | 150,000 | - |
| Price (S.R.) | - | 380,000 |
| Salvage Value (S.R.) | zero | 160,000 |
| Annual Operating Cost (S.R.) | 10,000 | 5,000 |
| Life in years | 5 | 10 |
| MARR rate | 6% | 6% |
c) If the contractor wants to compare between the results for all of the above
scenarios, what option do you recommend?
Conduct the analysis using all applicable method(s).
Q2. The benefits arising from the construction of a dam to provide irrigation water
are estimated as follows:
In the first three years after completion S.R. 800,000 per year; in the next five years
S.R. 1,200,000 per year; in the next five years S.R. 2,400,000 per year; in the next
fifteen years S.R. 3,600,000; and in the next 50 years S.R. 4,800,000 per year.
a) What is the present worth of these benefits at completion date if the interest rate is 5%
per annum? (1.25 marks)
b) What is the equivalent uniform annual benefit over this whole life of the project at the
same interest rate? (1.25 marks)
