You are considering buying a vehicle to use in yourdaily errands. A used vehicle will cost EGP85,000 and have aEGP20,000 market (salvage) value after a 5 years useful life, andconsumes 2 liters of fuel per 10 km travelled. A new vehicle willcost EGP130,000 and have a EGP40,000 market value after a 6 yearsuseful life. The new vehicle is expected to reduce fuel consumptioncompared with the used vehicle. You expect to drive the vehicle18,000 km per year. Fuel costs EGP8/liter and the interest rate is15% per year.
a) If the new vehicle is expected to reduce fuelconsumption by 10% compared with
the used vehicle, which vehicle should youbuy?
b) What is the percent reduction in the fuel consumptionby the new vehicle that
would reverse the decision you made in part(a)?
c) Determine the percentage change in the salvage valueof the new vehicle that
would reverse the decision made in part(a)?
