Question

A company is currently paying its employees $0.38 per mile to drive their own cars on company business. The company is considering supplying employees with cars, which would involve purchasing at $25,000 with an estimated three-year life, a net salvage value of $8,000, taxes and insurance at a cost of $900 per year, and operating and maintenance expenses of $0.22 per mile. If the interest rate is 10% and the company anticipates an employee’s annual travel to be 22,000 miles, what is the equivalent cost per mile (neglecting income taxes)?

Answer 1

The equivalent cost per mile is mathematically given as

Equivalent kilometer =  0.61

What is Distance?

Distance is a measure of the distance between two places. Depending on context, the term "distance" might refer to a precise measurement or an approximation based on other factors. |AB| can be used to represent the distance between two points.

What is an Equivalent cost per mile?

Generally, the equation for Equivalent annual cost  is  mathematically given as

EAC= $ 25,000 ( A/P, 10% , 3 years ) + $ 900 + $ 0.22 * 22,000 - $ 8000 ( A/F , 10% , 3 years)

Therefore

EAC= $ 25,000 * 0.402115 + $ 5740 - $ 8000 * 0.302115

EAC= $ 13,375.955

In conclusion, the Equivalent cost per kilometer

Equivalent kilometer $=\frac{ 13,375.955}{22,000}$

Equivalent kilometer =  0.61

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