Question

A local utility company needs to make a decision regarding which tire type to use for the truck it uses when servicing the local electric grid. The time period for the analysis is 6 years. The following assumptions will be used for the analysis: gasoline price of $3.00 per gallon, and 25,000 miles driven per year. Two tire types are available for purchase (need to buy 4 tires for the truck). Type A, a lower quality tire, sells for $250 per tire, the tire is expected to last 50,000 miles, and result in average gasoline use for the truck of 20 miles per gallon. Type B, a higher quality tire, sells for $400 per tire, the tire is expected to last 75,000 miles, and result in an average gasoline use for the truck of 25 miles per gallon. a. Calculate the annual savings in gasoline costs that would result from using Type B instead of Type A.b. For the overall 6-year period, calculate the overall cost (include both the cost of gasoline and the cost of tires) for both tire types, and determine which tire type should be purchased.

Answer 1

Answer:

Explanation:

Using type B

Rate of gasoline use = 25 miles per gallon

In 1 year - 25000 miles

So, gasoline to be spent = 25000/25=1000

Using type A

Rate of gasoline use = 20 miles per gallon

In 1 year - 25000 miles

So, gasoline to be spent = 25000/20=1250

1250 -1000=250

Thus, by using type B, save up 250 gallons and 250*$3 = $750

Total cost of A:

Gasoline costs for year = 1250*3=$3750; for 6 years $22500

Tires last for 2 years (50000/25000), so it needs to be repurchased 3 times

Tire cost = 3*240*4 = $3000

Total Cost = 3000+22500=25500

Total cost of B:

Gasoline costs for year = 1000*3=$3000; for 6 years $18000

Tires last for 3 years (75000/25000), so it needs to be repurchased 2 times

Tire cost = 2*400*4 = $3200

Total Cost = 3200+18000=21200

Type B is cheapest and lasts longer, so it should be purchased