Answer:
Truck A $7,763.50
Truck B $6,910.80
Truck B is more economical
Explanation:
Calculation to select the most economical truck on the basis of AE analysis.
In order for us to find the equivalent annual cost of over 12years period what we should do is to find the annual equivalent cost of the first replacement cycle for both truck A and truck B.
Calculation for Truck A
In Truck A Four replacements will be needed
AE (12%) A= ($15,000 - $5,000) (A/P, 12%, 3)+ (0.12) ($5,000) + $3,000
Truck A= $7,763.50
Calculation for Truck B
In Truck B Three replacements will be needed
AE (12%)B= ($20,000 - $8,000) (A/P, 12%, 4)+ (0.12) ($8,000) + $2,000
Truck B= $6,910.80
Based on the above calculation Truck B is a more economical when compared to Truck A because it has lower or lesser amount of $6,910.80 than Truck A which has higher amount of $7,763.50
