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QUESTION ONE A new three-wheeler auto costs 20,000 and may be scrapped at the end of any year at the prices below, together with annual
QUESTION ONE A new three-wheeler auto costs 20,000 and may be scrapped at the end of any year at the prices below, together with annual operating costs if not scrapped. Year (end) 1 2 3 4 5 6 Scrap value ( at PV). 15,000 13,000 10,000 8,000 6,000 5,000 Cost per year ( at PV) 5,000 6.000 7,500 8,000 8,500 9,500 It is not possible to sell the auto after use but also buy a second hand auto of different value. It may be cheaper to do so than with a new auto. The purchase price of the auto of this make is as follows: Age of auto 0 1 2 3 4 5 Purchase price ( at PV) 20,000 16,000 13,000 13,000 10,000 8,000 6,000 Required What is the age to buy and sell the auto to minimize average annual cost
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