Gateway Tours is choosing between two bus models. One is more expensive to purchase and maintain but lasts much longer than the other. Its discount rate is 11.0%. The company plans to continue with one of the two models for the foreseeable future. Based on the costs of each shown below, which should it choose? (Note: dollar amounts are in thousands.) Model Old Reliable Short and Sweet Year 01 -$200 -$100 Year 1 -$4.0 -$2.0 Year 2 -$4.0 -$2.0 Year 3 -$4.0 - $2.0 Year 4 -$4.0 -$2.0 Based 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. OB. Gateway Tours should choose Short and Sweet because the equivalent annual annuity of its costs is smaller OC. Gateway Tours should choose Old Reliable because the equivalent annual annuity of its costs is smaller. OD. Gateway Tours should choose Old Reliable because it lasts longer. Year 5 -$4.0 Year 6 -$4.0 Year 7 -$4.0

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
icon
Related questions
Question
Gateway Tours is choosing between two bus models. One is more expensive to purchase and maintain but lasts much longer than the other. Its discount rate is
11.0%. The company plans to continue with one of the two models for the foreseeable future. Based on the costs of each shown below, which should it choose?
(Note: dollar amounts are in thousands.)
Model
Old Reliable
Short and Sweet
Year 0
-$200
-$100
Year 1
-$4.0
-$2.0
Year 2
-$4.0
-$2.0
Year 3
-$4.0
-$2.0
Year 4
-$4.0
-$2.0
Based 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.
OB. Gateway Tours should choose Short and Sweet because the equivalent annual annuity of its costs is smaller.
OC. Gateway Tours should choose Old Reliable because the equivalent annual annuity of its costs is smaller.
D. Gateway Tours should choose Old Reliable because it lasts longer.
Year 5
-$4.0
Year 6
-$4.0
Year 7
-$4.0
Transcribed Image Text:Gateway Tours is choosing between two bus models. One is more expensive to purchase and maintain but lasts much longer than the other. Its discount rate is 11.0%. The company plans to continue with one of the two models for the foreseeable future. Based on the costs of each shown below, which should it choose? (Note: dollar amounts are in thousands.) Model Old Reliable Short and Sweet Year 0 -$200 -$100 Year 1 -$4.0 -$2.0 Year 2 -$4.0 -$2.0 Year 3 -$4.0 -$2.0 Year 4 -$4.0 -$2.0 Based 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. OB. Gateway Tours should choose Short and Sweet because the equivalent annual annuity of its costs is smaller. OC. Gateway Tours should choose Old Reliable because the equivalent annual annuity of its costs is smaller. D. Gateway Tours should choose Old Reliable because it lasts longer. Year 5 -$4.0 Year 6 -$4.0 Year 7 -$4.0
Expert Solution
steps

Step by step

Solved in 5 steps with 9 images

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education