Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
![**Gateway Tours Decision on Bus Models**
Gateway Tours is choosing between two bus models. One is more expensive to purchase and maintain, but lasts two years longer than the other. Gateway’s discount rate is 9%. It plans to continue with one of the two models for the foreseeable future. Based on the equivalent annual costs of each, shown below, which should it choose?
[Note: I have tried to make it easier for you to solve this problem. You do not need to do extra, unnecessary calculations merely to show me your work.]
| Model | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 |
|-------|--------|--------|--------|--------|--------|--------|--------|
| Old R | $0 | -$29 | -$29 | -$29 | -$29 | -$29 | -$29 |
| S & S | $0 | -$27 | -$27 | -$27 | -$27 | -$27 | |
**Which bus should Gateway Tours choose, and why?**
Give me the name of the bus that should be chosen, and the final numbers that justify your answer. Your answer must take the form: "Choose ______________ because $___________ is better than $________."](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Feeb1fcba-4a85-4c8e-822f-1910eb414763%2F10c7c323-83f7-4585-a5c0-c6bcfac436e3%2F8tqvehm_processed.png&w=3840&q=75)
Transcribed Image Text:**Gateway Tours Decision on Bus Models**
Gateway Tours is choosing between two bus models. One is more expensive to purchase and maintain, but lasts two years longer than the other. Gateway’s discount rate is 9%. It plans to continue with one of the two models for the foreseeable future. Based on the equivalent annual costs of each, shown below, which should it choose?
[Note: I have tried to make it easier for you to solve this problem. You do not need to do extra, unnecessary calculations merely to show me your work.]
| Model | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 |
|-------|--------|--------|--------|--------|--------|--------|--------|
| Old R | $0 | -$29 | -$29 | -$29 | -$29 | -$29 | -$29 |
| S & S | $0 | -$27 | -$27 | -$27 | -$27 | -$27 | |
**Which bus should Gateway Tours choose, and why?**
Give me the name of the bus that should be chosen, and the final numbers that justify your answer. Your answer must take the form: "Choose ______________ because $___________ is better than $________."
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