Please, I really need your help.
Please don't copy and paste because answers are incorrect. The red highlighted was not applied in the solutions online. Please.
Your company has an existing fleet of eight 150-ton haul trucks, and economic consideration is being given to either:
1. Replace the eight existing trucks with six new 200-ton trucks.
2. Replace the existing truck beds with a new ultra-light series capable of increasing the payload while maintaining the gross vehicle weight. This decision would reduce the number of operating trucks from the current eight to seven while maintaining current production.
3. Repair and keep the existing eight trucks. The economic objective in this decision is to lower the overall cost of operations while maintaining the existing level of productivity.
Listed below are the time diagrams for each alternative, which includes costs for all modifications, training, repairs, and operating costs for each alternative along with the relative capacities per truck. If six new trucks are purchased, all of the eight existing trucks will be sold at time zero for $200,000 per truck. If modified, only one truck will be sold for the same value of $200,000. Scenario 3 assumes that the entire existing fleet will have to be replaced at the end of year four with six new machines, with replacement costs and residual values also shown per machine.
$ New 200 Ton Trucks, Costs & Salvage/Truck (in 000s)
Year 0 1 2 3 4 5 6 7
Capital Costs (1,300) - - - - - -
Operating Costs (700) (700) (700) (1,000) (750) (750) (750)
Residual Value* 200 100
This relates to the before-tax value of each of the eight existing trucks to be sold.
Modified Bed 150T to 170T, Costs & Salvage/Truck (in 000s)
Year 0 1 2 3 4 5 7
Capital Costs 175 - - (210) - - -
Operating Costs - (750) (730) (730) (825) (775) (775)
Residual Value* 200 50
This relates to the before-tax value of one existing truck that could be sold.
Existing Trucks 150T, With 6 New 200T in Year 4 (in 000s)
Year 0 1 2 3 4 5 6
Capital Costs 1,300 - - - - -
Operating Costs (100) (730) (730) (730) (730) (000) (000)
Residual Value 100
The company has a before-tax, escalated minimum rate of return of 12. Use present worth cost analysis and incremental net present value to determine from an economic viewpoint which alternative is best.
