Finance Assignment | Professional Writing
1. School, Bus Replacement Adams County has 98 okler model school buses that carry a salvage value (today) of $7 600 each The county officials are contemplating replacing all the buses with 90 new larger ones, each costing $130.000 If the county decides to keep the existing fleet it will need to spend an additional $11,000 per bus to refurbish them. Half of the existing fleet will be refurbished immediately, and the other half at the end of 1 year Project Life: 10 years Bus Operations • The busses operate (on the average) 300 days per year. • Average travel distance: Existing Fleet 43 miles/day/bus. New Float 46 miles/day/bus. • Fuel Efficiency. Existing buses 72 mpg, new buses 10.5 mpg • Fuel Price: Fuel is assumed to cost an average of $200/gallon in the 1 year and escalate at 6% per year. Manpower Driver wages are a major cost item. Other cost items are negligible and are not provided. . Current Fleet: Requires 92 drivers each working an average of 4 hours/day for 300 days •
New Fleet. Requires 84 drivers each working an average of 4 hours per day for 300 days. • Driver wages. $20/hour in the 1st year and escalating at 3% per year Bus Maintenance Non people related costs (like insurance, oil change etc.) is estimated to be • $9,000 per year per bus for the existing fleet • $8,000 per year per bus for the new fleet. • The maintenance costs are expected to escalate at 3% per year Salvage Value The expected salvage value at the end of the project life: New bus = $13,000 each Existing Bus = $0 each The county uses Cost of Capital (MARR) (ie, interest rate) of 10% Determine 1) Present Worth of keeping the existing fleet 2) Present Worth of acquiring the new fleet 3) Difference in Present Value of (New – Old) fleet. 4) Difference in Annual Value of (New Old) fleet
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