Find the economic service life of this new vehicle

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Reference no: EM131389367

Suppose a company has a gasoline vehicle, but is considering purchasing a new hybrid vehicle that would cost $20,000, have operating costs of $1,200 in the first year, and have a salvage value of $8,000 at the end of the first year. For the remaining years, operating costs increase each year by 10% over the previous year’s operating costs. Similarly, the salvage value declines each year by 20% from the previous year’s salvage value. The gasoline vehicle has a maximum life of six years. An overhaul costing $2,800 and $4,100 will be required during the fourth and six years of service, respectively. The firm’s required rate of return is 10%. Find the economic service life of this new vehicle.

Reference no: EM131389367

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