The initial cost of a pickup truck is 11289 and will have a

The initial cost of a pickup truck is $11289 and will have a salvage value of $3730 after five years. Maintenance is estimated to be a uniform gradient amount of $133 per year, with zero dollar for first year maintenance. The operation cost is estimated to be $0.23 per mile for 167 miles per month. If the interest rate is 12%, what is the annual equivalent cost (AEC) for the truck?

Solution

Net cost = 11289-3730 = 7559

Maintanence = 133*5 = 665

Operation cost = 0.23 *167*12*5 = 2304.60

total cost = 10528.60

Interest = 12% of 10528.60 = 1263.36

Annual Equivalent cost = (10528.60+1263.36)/5 = 2358.392