Jason is considering engaging in part-time work as an Uber driver, but he requires an initial investment in a vehicle. Following thorough market research, he has identified two potential options: Choice A: Purchase a pre-owned 2000 Chevron car valued at $3000. The intended usage is for 6 months. Jason anticipates a monthly net income of $600, factoring in fuel costs. The discount rate is projected 5% per month due to depreciation and inflation. Choice B: Acquire a new electric bicycle for $2000. However, this alternative may result in reduced delivery speed. Similar to the car, Jason intends to use the bicycle for 6 months and anticipates a monthly net income of $420. The discount rate is projected 4% per month due to depreciation and inflation. Questions: 1. Determine the Net Present Value (NPV) and Internal Rate of Return (IRR) for both options using an Excel spreadsheet. 2. Based on the calculations, select the preferred option for Jason and provide reasoning for the choice. 3. Assess whether the two options are independent projects or mutually exclusive projects. Identify any potential conflicts between NPV and IRR, and determine the more reliable evaluation method. Include references where appropriate.
Jason is considering engaging in part-time work as an Uber driver, but he requires an initial investment in a vehicle. Following thorough market research, he has identified two potential options: Choice A: Purchase a pre-owned 2000 Chevron car valued at $3000. The intended usage is for 6 months. Jason anticipates a monthly net income of $600, factoring in fuel costs. The discount rate is projected 5% per month due to depreciation and inflation. Choice B: Acquire a new electric bicycle for $2000. However, this alternative may result in reduced delivery speed. Similar to the car, Jason intends to use the bicycle for 6 months and anticipates a monthly net income of $420. The discount rate is projected 4% per month due to depreciation and inflation. Questions: 1. Determine the Net Present Value (NPV) and Internal Rate of Return (IRR) for both options using an Excel spreadsheet. 2. Based on the calculations, select the preferred option for Jason and provide reasoning for the choice. 3. Assess whether the two options are independent projects or mutually exclusive projects. Identify any potential conflicts between NPV and IRR, and determine the more reliable evaluation method. Include references where appropriate.
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
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Transcribed Image Text:Jason is considering engaging in part-time work as an Uber driver, but he requires an initial investment in a vehicle. Following
thorough market research, he has identified two potential options:
Choice A: Purchase a pre-owned 2000 Chevron car valued at $3000. The intended usage is for 6 months. Jason anticipates a monthly
net income of $600, factoring in fuel costs. The discount rate is projected 5% per month due to depreciation and inflation.
Choice B: Acquire a new electric bicycle for $2000. However, this alternative may result in reduced delivery speed. Similar to the car,
Jason intends to use the bicycle for 6 months and anticipates a monthly net income of $420. The discount rate is projected 4% per
month due to depreciation and inflation.
Questions:
1. Determine the Net Present Value (NPV) and Internal Rate of Return (IRR) for both options using an Excel spreadsheet.
2. Based on the calculations, select the preferred option for Jason and provide reasoning for the choice.
3. Assess whether the two options are independent projects or mutually exclusive projects. Identify any potential conflicts between
NPV and IRR, and determine the more reliable evaluation method. Include references where appropriate.
(Give proper calculations, screenshots of excvel sheet so I can create the same with ur help)
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