Question 1 The management of a private transportation company is interested in reducing the carbon footprint of their company by replacing several old trucks. These include four (4) Class 8 Volvos, thirteen (13) on-highway Volvo trucks, and twenty-seven (27) Freightliners. The company may either replace the ageing trucks with new ones of the same kind OR replace them with electric Semi trucks from Tesla.

The first alternative involves scrapping all old trucks and purchasing forty-four (44) new Volvo and Freightliners models and planting 150,000 trees (to offset carbon usage).

The second option involves scrapping all old trucks and purchasing thirty-one (31) Tesla models along with related equipment.

The table below shows the revenue and expense predictions:

Description Alternative 1 Alternative 2

Machinery/related equipment $2,580,000 $1,750,000

Annual revenues due to the new trucks $2,400,000 $2,260,000

Annual labour cost $234,000 $385,000

Annual O&M cost $790,000 $650,000

CCA Rate 24.4% 24.4%

Project life 15 years 15 years

Salvage value $350,000 $460,000

The management team believes that various investment opportunities available for the company will guarantee at least a rate of return on investment (MARR) of at least 9.5%. The marginal tax rate is 21%. Due to uncertainty, some input variables may vary from the base cases presented in the above table. The following variabilities in estimates should be considered:

Variable Minimum Maximum

Revenues -15% +20%

Labour Cost -35% +10%

O&M Cost -5% +30%

Assume that each of these variables can independently deviate from its base value.

a] Assuming that the uncertain variables change once at a time, use NPW to conduct sensitivity analysis. Ideally, you should plot the relationship between percentage change in a variable and NPW. You can use an increment of 5% change in input variables when conducting sensitivity analysis. You can consider a range of variation corresponding with the minimum and maximum percentage changes given in the previous table.