Problem: You are contemplating converting your car from burning gasoline to propane.
The following information is available:
Propane conversion kit (parts and labor) $750
Salvage value of kit after 5 years is $100
Kilometres travelled per year 40,000
Gasoline consumption 8 liters per 100 km.
Average gasoline price over 5 years is 0.40 cents per liter.
Annual maintenance advantage burning propane is $100
Propane is 10% cheaper and 10% more efficient.
The minimum attractive rate of return is 12%
Is the conversion justified economically?
Use equivalent annual cost method.