Alternative to overhauling and keeping buses is trade

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Reference no: EM131927983

A bus company has 20 buses which were purchased five years ago for $22,000 each. A major overhaul on these buses will cost $1,800 per bus next year (end of year 1). An alternative to overhauling and keeping the buses is to trade them in on 25 new, smaller models. The trade-in value for the old buses will be $4,000 each, and the cost of the new buses is $22,500 each. If the old buses are overhauled, their remaining life will be seven years, their annual O & M costs will be $3,000 per bus, and salvage value will be $800 per bus. The newer buses will last for eight years, have annual O & M costs of $2,000 per bus, and salvage value of $500 each. For an MARR of 10%, determine which plan is best.

Reference no: EM131927983

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