Ithaca is considering a new $45,000 snowplow that will save the city $400 per day of use compared to the existing one. It should last 12 years and have a resale value of $2500. (a) To obtain a 14% rate of return what is the minimum number of days per year on average it will have to be used. (b) Research the environmental impact of road salt. What are other options?

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Business

Jakayla Mathews

12 August, 06:16

Ithaca is considering a new $45,000 snowplow that will save the city $400 per day of use compared to the existing one. It should last 12 years and have a resale value of $2500. (a) To obtain a 14% rate of return what is the minimum number of days per year on average it will have to be used. (b) Research the environmental impact of road salt. What are other options?

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Addison Conley · Answer 1

a / 20 days per year on average

b / The use of road salt to is an effective deicer method. However, it will eventually causes some harmful impact on the environment including but not limited to increasing in water/soild salinity, contamination of public drinking waters, destroy the soild structure and slowly killing of trees and plants. Luckily, there are some other options which are more environment-friendly such as Cheese brine, Sand, Urea, Beet molasses

Explanation:

a / To evaluate the investment of the new snowplow, denote X is the average amount of saving per a year as the new snowplow is used.

Consider the average amount of saving as an annuity for the next 12 years, with the discount rate of 14%. The present value (PV) = 45,000 - 2,500/1.14^ (-12) = $44,481.1

Thus, to obtain the rate of return of 14%, PV of the annuity should be equals to $44,481.1 meaning: 44,481.1 = (X/14%) x [ 1 - 1.14^ (-12) ] X = $7858.44

As one day use would save Ithaca $400, to achieve the targeted saving of $7858.44, the city has to use the snowplow at least 20 days per year (7858.44/400)