1. A firm is trying to decide between two types of trucks, one a conventional gasoline vehicle and the other a diesel powered. The following information is available.

	Gasoline	Diesel
Initial investment	$27,000	$21,000
Useful life	4 years	3 years
Salvage value	$9,000	$6,000
Operating cost per mile	$0.42	$0.36

a. With interest at 5% per year, determine the annual mileage at which the two trucks are equivalent.

b. For 15,000 miles per year in travel, which truck should be recommended?

2. Consider these two alternatives.

	Alternative 1	Alternative 2
Capital investment	$4,500	$6,000
Annual revenues	$1,600	$1,850
Annual expenses	$400	$500
Estimated market value	$800	$1,200
Useful life	8 years	10 years

a. Suppose that the capital investment of Alternative 1 is known with certainty. By how much would the estimate of capital investment for Alternative 2 have to vary so that the initial decision based on these data would be reversed? The annual MARR is 15% per year.

b. Determine the life of Alternative 1 for which the AWs are equal.

3. An area can be irrigated by pumping water from a nearby river. Two competing installations are being considered.

	Pump A 6 in. System	Pump B 8 in. System
Operating load on motor	15 hp	10 hp
Efficiency of pump motor	0.60	0.75
Cost of installation	$2,410	$4,820
Market value	$80	$0
Useful life	8 years	8 years

The MARR is 12% per year and electric power for the pumps costs $0.06 per kWh. Recall that 1 horsepower (hp) equals 0.746 kilowatts.

1. At what level of operation (hours per year) would you be indifferent between the two pumping systems? If the pumping system is expected to operate 2,000 hours per year, which system should be recommended?
2. Assuming 2,000 hours of operation, perform a sensitivity analysis on the efficiency of Pump A. Over what range of pumping efficiency is Pump A preferred to Pump B? Draw a graph to illustrate your answer.