Fisher Ferry Company operates a high speed passenger ferry service across the Mississippi River. One of its ferryboats is in poor condition. This ferry can be renovated at an immediate cost of $ 200,000. Further repairs and an overhaul of the motor will be needed five years from now at a cost of $ 100,000. In all, the ferry will be usable for 10 years if this work is done. At the end of 10 years, the ferry will have to be scrapped at a value of $ 60,000. The scrap value of the ferry right now is $ 70,000. It will cost $ 300,000 yearly to operate the ferry, and revenues will total $ 400,000 annually. As an alternative, Fisher Ferry Company can purchase a new ferryboat at a cost of $ 720,000. If the company decides to purchase the new one, the old one will be sold right away. The new ferry will have a life of 10 years, but it will require some repairs costing $ 30,000 at the end of five years. At the end of 10 years, the ferry will have a scrap value of $ 60,000. It will cost $ 210,000 yearly to operate the ferry, and revenues will total $ 400,000 annually. Fisher Ferry Company requires a return of at least 14% before taxes on all investment projects. Compute for the net present value (NPV) for both options. Which alternative should the company choose? Defend your answer.
Fisher Ferry Company operates a high speed passenger ferry service across the Mississippi River. One of its ferryboats is in poor condition. This ferry can be renovated at an immediate cost of $ 200,000. Further repairs and an overhaul of the motor will be needed five years from now at a cost of $ 100,000. In all, the ferry will be usable for 10 years if this work is done. At the end of 10 years, the ferry will have to be scrapped at a value of $ 60,000. The scrap value of the ferry right now is $ 70,000. It will cost $ 300,000 yearly to operate the ferry, and revenues will total $ 400,000 annually. As an alternative, Fisher Ferry Company can purchase a new ferryboat at a cost of $ 720,000. If the company decides to purchase the new one, the old one will be sold right away. The new ferry will have a life of 10 years, but it will require some repairs costing $ 30,000 at the end of five years. At the end of 10 years, the ferry will have a scrap value of $ 60,000. It will cost $ 210,000 yearly to operate the ferry, and revenues will total $ 400,000 annually. Fisher Ferry Company requires a return of at least 14% before taxes on all investment projects. Compute for the
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