Question

Truck Alpha initially costs $369 more than Truck Beta, but it consumes 0.03 liter/km versus 0.05 liter/km for Beta. Both trucks last 7 years, and Beta's salvage value is $174 smaller than Alpha's. Fuel costs $1.32 per liter. Other things being equal, beyond how many kilometers of use per year does Alpha become preferable to Beta?

Answer 1

answers

Truck Alpha initially cost $362 more than truck Alpha.

Alpha’s salvage value is $119 greater than Beta.

Therefore, the real cost difference between Alpha and Beta is $362 - $119 = $243

i.e. Alpha is $243 costlier than Beta.

Alpha will become preferable to Beta when Beta consumes $243’s worth more fuel than Alpha.

The fuel cost difference between the two trucks in each kilometer of travel is $0.07 - $0.03 = $0.04 per kilometer.

So, Beta is costlier by $0.04 for each kilometer traveled.

So, to recover $243, the total kilometer to be traveled is $243/$0.04 = 6075 kilometer

After 6075 kilometers is traveled, Alpha will be preferred over Beta.