Marcus is considering a purchase of a new Toyota that costs $20,000 at a local dealership. Marcus estimatesthe annual cost of maintenance, registration, insurance, and gas to be about $1,500. After extensive internetresearch, Marcus estimates that he can sell his Toyota in three years for $10,000. What is Marcus's estimatedcost of owning and driving the car for three years?$20,0003 x $1,500+$20,000-$24,5003x $1,500+$20,000 $10,000 $14,500$20,000 $10,000 = $10,000

Purchase cost of Car= $ 20000Annual uses cost of Car = $ 1500Selling price of car = $ 10000Life of…

Answered: Marcus is considering a purchase of a…

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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Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $35,000. The object is to save on horse transporter rentals. Marsha had been renting a transporter every other week for $200 per day plus $1.00 per mile. Most of the trips are 80 or 100 miles in total. Marsha usually gives the driver, Joe Laminitis, a $40 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $0.45 per mile. Insurance costs for Marsha’s transporter are $1,200 per year. The transporter will probably be worth $15,000 (in real terms) after eight years, when Marsha’s horse Spike, will be ready to retire. Assume a nominal discount rate of 9% and a 3% forecasted inflation rate. Marsha’s transporter is a personal outlay, not a business or financial investment, so taxes can be ignored. Calculate the NPV of the investment.
Vashti has a suburban home within walking distance of the railroad. She commutes to work in the city at a cost of $366.50 a month. She also rents a car every weekend, which costs $450 a month including insurance and fuel. She is considering purchasing a new car for cash to replace commuting and rental costs. It would cost $22,000, get 31 miles per gallon, and have an estimated resale value of $8,000 after five years. After buying this car, Vashti would drive 20,000 miles per year and have maintenance and repairs of $1,400 per year, insurance of $1,500 per year, and fuel costs of $2.50 per gallon. Assume that all costs occur at the end of the year and that she sells the car at the end of the fifth year. If Vashti's discount rate is 7 percent after tax, should she purchase the car?
Rick wishes to purchase a new car and can afford monthly payments of up to $275 per month. Finance is available and the terms are that the loan lasts for 6 years, and the annual interest rate is 8%. What is the maximum price for a car that Ryan's budget can afford?Round your answer to the nearest hundred dollars.
Imagine that you are trying to evaluate the economics of purchasing an automobile. You expect the car to provide annual cash benefits of $1,200 at the end of each year, and assume that you can sell the car for proceeds of $5,000 at the end of the planned 5-year ownership period. All funds which are you use has 6% discount rate. What should be the required return applicable to valuing the car.
After careful comparison shopping, Noah Griffin decides to buy a new Toyota Camry. With some options added, the car has a price of $23,610 - including plates and taxes. Because he can't afford to pay cash for the car, he will use some savings and his old car as a trade-in to put down $7,610. Noah plans to finance the rest with a $16,000, 60-month loan at a simple interest rate of 5 percent. What will his monthly payments be? Round the answer to the nearest cent. $ per month How much total interest will Noah pay in the first year of the loan? Round the answer to the nearest cent. (Use a monthly payment analysis procedure similar to the one in Exhibit 7.7.) $ How much interest will Noah pay over the full (60-month) life of the loan? Round the answer to the nearest cent. $ What is the APR on this loan? Round the answer to 2 decimal places. %
An auto dealership is running a promotional deal whereby they will replace your tires free of charge for the life of the vehicle when you purchase your car from them. You expect the original tires to last for 30,000 miles, and then they will need replacement every 30,000 miles thereafter. Your driving mileage averages 15,000 miles per year. A set of new tires costs $400. If you trade in the car at 150,000 miles with new tires then, what is the lump-sum present value of this deal if your personal interest rate is 12% per year?
Mark is trying to decide if he should attend college or not. Part of his decision will be based on the return on investment of college. He estimates costs to attend Texas Tech for 4 years including room and board are $20,000 per year. He also assumes tuition costs will rise by 3.5% per year. How much is a 4-year degree going to cost Mark? $92,183.27 $84,298.86 $7,231,158.87 $1,314,002.83
Charlie is planning to buy a small apartment complex; the complex will cost $1,000,000 and they will generate $450,000 in profits over the next three years. The complex will also need $50,000 in renovations during year 4. Charlie's required rate of return is 17%. What is the NPV on Charlie's investment ___? and should Charlie purchase the apartments___? yes or no
Mike is considering quitting his job to start a bakery, his dream work. To do so, he would need to make an investment of $80,000 today. He estimates that the bakery would generate revenues of $90,000 over the next five years and would require $20,000 in expenses. At his current job he earns $50,000. Therefore, Mike estimates that the incremental cash flows from opening the bakery would be $20,000 per year for the next five years. Calculate the NPV of the business using a discount rate of 15%. Should Mike quit his job and start the bakery? Calculate the IRR for the project described in problem 3. If Mike requires a return of 15% on the business, should he start the bakery?
Bobby Whitaker wants to save money to meet three objectives. First, he would like to be able toretire after 30 years from now with retirement income of $15,000 per month for 25 years, with thefirst payment received 30 years and 1 month from now. Second, he would like to purchase a cabin inRapid City in 10 years at an estimated cost of $380,000. Third, after he passes on at the end of the25 years of withdrawals, he would like to leave an inheritance of $1.2 million to his nephew Paulie.He can afford to save $2,150 per month for the next 10 years. If he can earn an EAR of 10 percentbefore he retires and an EAR of 7 percent after he retires, how much will he have to save eachmonth in Years 11 through 30? [Hint: Making a timeline is always a useful first step.]
Ernie Bilko has a business idea. He wants to rent an abandoned gas station for just the months of November and December. He will convert the gas station into a drive-through Christmas wrapping station. Customers will drive in, drop off their gifts, return the next day, and pick up their wrapped gifts. He needs $338,500 to rent the gas station, purchase wrapping paper, hire workers, and advertise. If he borrows this amount at 6 and 1/2% interest for those two months, what size lump sum payment will he have to make to pay off the loan? (Round your answer to the nearest cent.)
Alex wants to buy a shopping complex in Vancouver 3 years after completing his Masters. The complex will cost CAD 17,000,000 and he would need a 20% down payment after 5 years. To save for the down payment, Alex could deposit one lump sum today at a 6% annual compound rate. Alternatively, Alex can wait one year and make one lump sum deposit. Will Alex need more money to deposit if she does it now or after one year? How much more is required? (Use Formula Approach)

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