Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $55,000. The object is to save on horse transporter rentals. Marsha had been renting a transporter every other week for $220 per day plus $2.00 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 $0.65 per mile. Insurance costs for Marsha's transporter are $2,200 per year. The transporter will probably be worth $35,000 (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 2% forecasted inflation rate. Marsha's transporter is a personal outlay, not a business or financial investment so taxes can be ignored
Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $55,000. The object is to save on horse transporter rentals. Marsha had been renting a transporter every other week for $220 per day plus $2.00 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 $0.65 per mile. Insurance costs for Marsha's transporter are $2,200 per year. The transporter will probably be worth $35,000 (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 2% forecasted inflation rate. Marsha's transporter is a personal outlay, not a business or financial investment so taxes can be ignored
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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Transcribed Image Text:Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $55,000. The object is to save on
horse transporter rentals.
Marsha had been renting a transporter every other week for $220 per day plus $2.00 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 $0.65 per mile. Insurance costs for Marsha's transporter are $2,200 per year.
The transporter will probably be worth $35,000 (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 2% 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.
Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.
> Answer is complete but not entirely correct.
NPV
S 40,759 X
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