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AACE International Exam CCP Topic 4 Question 22 Discussion
Topic #: 4
A used concrete pumping truck can be purchased for $125,000. The operation costs are expected to be $65,000 the first year and increase 5% each year thereafter. As a result of the purchase, the company will see an increase in income of $100,000 the first year and 5% more each subsequent year. The company uses straight-line depreciation. The truck will have a useful life of five (5) years and no salvage value. Management would like to see a 10% return on any investment. The company's tax rate is 28%.
Is a rise in the price level of a good or service, or market basket of goods and/or services.
Given that the average life span of the lithium battery is 24 months with a standard deviation of 2 months, we need to calculate the probability that the battery will last between 20 and 26 months.
Using the Z-score formula:
Z=XZ = \frac{X - \mu}{\sigma}Z=X
For 20 months: Z=20242=2Z = \frac{20 - 24}{2} = -2Z=22024=2
For 26 months: Z=26242=1Z = \frac{26 - 24}{2} = 1Z=22624=1
Looking up these Z-scores in the standard normal distribution table:
Z = -2 corresponds to approximately 2.28%
Z = 1 corresponds to approximately 84.13%
The probability that the battery will last between 20 and 26 months is approximately 84%.
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