Reference no: EM133063138

Question - Your design team has produced two alternative designs for city buses. Alternative A has an initial cost of $100,000, estimated annual operating costs of $10,000, will require a $50,000 overhaul after five years. Alternative B has an initial cost of $150,000, estimated annual operating costs of $5,000, will not require an overhaul after five years. Both alternatives will last ten years. If all other vehicle performance characteristics are the same, determine which bus is preferable using a discount rate of 10%.  Assume that operating expenses occur over the course of the year, but are payable at the end of the year.

Required - Would the decision reached in Exercise 2 change if the discount rate changed to:

a. 20%?

b. 15%?

c. How do the resulting cost figures influence your assessments of the given cost estimates?