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(Table: Taxi Fleet) Metro Cab is considering replacement of its fleet of old taxicabs. To replace its fleet, Metro must spend $150,000 on new taxicabs.
(Table: Taxi Fleet) Metro Cab is considering replacement of its fleet of old taxicabs. To replace its fleet, Metro must spend $150,000 on new taxicabs. The new taxis will incur $5,000 of maintenance expenses per year. Alternatively, Metro could spend $20,000 today to refurbish its taxicabs and incur an additional $20,000 per year of maintenance expenses for the next three years. Metro would then have to buy new taxicabs for $150,000 at the end of three years, leading to lower maintenance expenses of $5,000 per year. Year Costs with New Costs with Old Net Difference Taxicabs Taxicabs 0 -$150,000 -$20,000 -5,000 -20,000 -5,000 AWN- -20,000 -5,000 -(20,000 + 150,000) -5,000 -5,000 Using an interest rate of 10%, the net present value of the first three years is $. 65,000 20,000 O 195,000 37,272.73
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