Reference no: EM132936027

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.

Problem 1: Calculate the annual savings in gasoline costs that would result from using Type B instead of Type A.

Problem 2: 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.