Gateway Tours is choosing between two bus models. One is more expensive to purchase and maintain but lastsmuch longer than the other. Its discount rate is 10.8%. The company plans to continue with one of the two models forthe foreseeable future. Based on the costs of each shown below, which should it choose? (Note: dollar amounts arein thousands.)ModelOld ReliableShort and SweetYear 0- $199- $98Year 1- $3.9-$2.1Year 2- $3.9-$2.1Year 3-$3.9-$2.1Year 4-$3.9-$2.1Year 5-$3.9Year 6- $3.9Year 7- $3.9Based on the costs of each model, which should it choose? (Select the best choice below.)OA. Gateway Tours should choose Short and Sweet because the NPV of its costs is smaller.B. Gateway Tours should choose Old Reliable because it lasts longer.OC. Gateway Tours should choose Short and Sweet because the equivalent annual annuity of its costs is smaller.OD. Gateway Tours should choose Old Reliable because the equivalent annual annuity of its costs is smaller.

Equivalent annual cost is the cost of operating and maintaining an asset annually. It is also called…

Answered: Gateway Tours is choosing between two…

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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