Answer Happy

Question 3 3.1 Assume you are working for Asda and you use several vans for deliveries of groceries to your customers. It has been 4 years since you have bought the vans. You are considering replacing the vans for new ones, explain what types of lives you must consider before making the decision of whether you should replace them or not. (10%) 3.2 Each van has a diesel engine and therefore are costly and environmentally unfriendly, They are 8 years old and can be sold for £2,500 each. Assume their market value (MV) in 2 years will be £300 each. Each van's annual maintenance expenses are expected to be £300 into the foreseeable future and they average only 35 miles per gallon of diesel. Diesel costs £6.00 per gallon, and each van will be used for about 3000 miles per year. If you sell the old vans, you can buy a newer model for £12,000. It will be under a maintenance warranty for two years, so this expense is negligible. The newer van will be a hybrid and therefore it would average 56 miles per gallon of fuel and will have an MV of £9,500 in two years. Use a two-year study period to determine which alternative is preferred. The MARR is 12% per year. [20%) 3.3 A steel works company purchased a plasma cutter, large scale metal cutting, 3 years ago at a cost of £127,000. The current market value of the machine is £100,000 andit can be kept in service for more than 8 year. MARR is 15% annually and the project net annual receipts and end-of-year market values for the machine are shown below. When is the best time for the company to abandon using this equipment? 7 1 45,000 97,000 Net Annual Receipts Market Value End of Year 4 5 35,000 30,000 75,000 70,000 2 3 45,000 40,000 90,000 81,000 6 22,000 60,000 19,000 52,000 15, 42,0 [20%)