Question

Gateway Tours is choosing between two bus models. One is more expensive to purchase and​ maintain, but lasts much longer than the other. ​ Gateway’s discount rate is​ 9%. It plans to continue with one of the two models for the foreseeable future. Based on the equivalent annual costs of​ each, shown​ below, which should it​ choose?  

​[Note: I have tried to make it easier for you to solve this problem. You do not need to do​ extra, unnecessary calculations merely to show me your​ work.]

Model Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Old R ​ $0 ​ -$23 ​ -$23 ​ -$23 ​ -$23 ​   -$23 ​ -$23    

S​ & S ​ $0 ​ -$21 ​ -$21 ​ -$21 ​ -$21                                            

Which bus should Gateway Tours​ choose?  

Give me the name of the bus that should be​ chosen, and the final numbers that justify your answer. Do not explain any concepts​ - I'm looking for an answer along the lines of​ "Choose _______________ because​ $____________ is better than​ $_________."

Answer 1

Based on the given data, pls find below workings:

Choose S&S Bus because​ (Equivalent Annual Cost) EAC of -ve $ 21 is better than​ -ve $ 23."