The Local Bus Company Considers Purchasing Ten More Buses

question 77

Essay

The local bus company considers purchasing ten more buses. Each bus costs $50,000 and will last seven years. The firm estimates that the purchase will increase it's annual revenues by $100,000 per year for as long as the buses last. If the real interest rate is 10%, should the local bus company buy the buses? Would your answer change if the interest rate fell to 8%?

---

Definitions:

Fifth Wheel

A pivoting platform attached to a tractor or truck chassis that provides a coupling point for a semi-trailer.

Axle

A rod or bar on which wheels turn or the housing that supports wheel assemblies. Also used to describe the shaft that transmits drive torque to the drive wheels.

Drivelines

Components, including the driveshaft, axles, CV joints, and differential, that transmit power from the engine to the wheels of a vehicle.

Torque Transfer

The process of transferring rotational force from one part of a mechanical system to another, allowing for movement and work to be done.