$1)$ You want to purchase a new car worth $$20,000.$ Calculate the car$$s life cycle cost if your plan to

sell the car after five years at a residual value of $$8,000.$ As per estimates, the annual expense

for maintenance & repair will be $$3,000,$ and gas consumption per year will be another $$7000.$

Please consider the applicable interest rate to be $10\%$

Required:

Determine LCC

Assignment $(2)$:

$$ Company XYZ differentiates between two machines A and B$.$ The two machines are

designed differently but have identical capacity.

$$ Machine A costs $$120,000$ and will last for $5$ years. It costs $$50,000$ per year to run.

$$ Machine B is an $$economy$$ model costing only $$110,000,$ but will last only for $6$

years, and costs $$40,000$ per year to run.

$$ These are real cash flows.

$$ The costs are forecasted in Dollars of constant purchasing power. Ignore tax.

Opportunity cost of capital is $10\%.$

Which machine Company X should buy?

A B

Cost of purchase $ $120,000$ $ $110,000$

running cost $ $50,000$ $ $40,000$

Useful Life $56$

Opportunity cost of capital $12\%$