Brad has someone interested in purchasing his existing boat for $80,000. He could use this cash as a deposit on the new boat which will cost him $225,000. His banker estimates the payments on the new boat will be about $1,500. The new boat is more fuel efficient and he believes he can cut his fuel costs by 10% but the more expensive boat will increase his insurance premium by 12%. He is also concerned that he will have to change to a larger boat slip which would increase his dock fees by 5%. The good thing about the new boat is that he should save on maintenance and repairs, at least for the first 3 years. The only other expense Brad would incur with the new boat is adding some additional fishing tackle and gear to accommodate larger parties that he estimates would cost him about $1,500. His fees for both the old and the new boat are as follows: Old Boat New Boat 4 hours $ 550 $ 600 6 hours $ 650 $ 700 Full Day (9 hours) $ 1,100 $ 1,200 Questions: 1. Which costs are relevant to Brad’s decision to purchase a new, larger boat? 2. If Brad decides to purchase a larger boat, what costs will be affected by this decision? Will they increase or decrease?
Brad has someone interested in purchasing his existing boat for $80,000. He could use this cash as a deposit on the new boat which will cost him $225,000. His banker estimates the payments on the new boat will be about $1,500. The new boat is more fuel efficient and he believes he can cut his fuel costs by 10% but the more expensive boat will increase his insurance premium by 12%. He is also concerned that he will have to change to a larger boat slip which would increase his dock fees by 5%. The good thing about the new boat is that he should save on maintenance and repairs, at least for the first 3 years. The only other expense Brad would incur with the new boat is adding some additional fishing tackle and gear to accommodate larger parties that he estimates would cost him about $1,500. His fees for both the old and the new boat are as follows: Old Boat New Boat 4 hours $ 550 $ 600 6 hours $ 650 $ 700 Full Day (9 hours) $ 1,100 $ 1,200 Questions: 1. Which costs are relevant to Brad’s decision to purchase a new, larger boat? 2. If Brad decides to purchase a larger boat, what costs will be affected by this decision? Will they increase or decrease?
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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Question
Brad has someone interested in purchasing his existing boat for $80,000. He could use this cash as a deposit on the new boat which will cost him $225,000. His banker estimates the payments on the new boat will be about $1,500. The new boat is more fuel efficient and he believes he can cut his fuel costs by 10% but the more expensive boat will increase his insurance premium by 12%. He is also concerned that he will have to change to a larger boat slip which would increase his dock fees by 5%. The good thing about the new boat is that he should save on maintenance and repairs, at least for the first 3 years. The only other expense Brad would incur with the new boat is adding some additional fishing tackle and gear to accommodate larger parties that he estimates would cost him about $1,500.
His fees for both the old and the new boat are as follows:
Old Boat New Boat
4 hours $ 550 $ 600
6 hours $ 650 $ 700
Full Day (9 hours) $ 1,100 $ 1,200
Questions:
1. Which costs are relevant to Brad’s decision to purchase a new, larger boat?
2. If Brad decides to purchase a larger boat, what costs will be affected by this decision? Will they increase or decrease?
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