Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $36,000. The object is to save on horse transporter rentals. Marsha had been renting a transporter every other week for $201 per week plus $1.05 per mile. Most of the trips are 90 miles in total. Marsha usually gives the driver a $45 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $.46 per mile. Insurance costs for Marsha’s transporter are $1,250 per year. The transporter will probably be worth $16,000 (in real terms) after eight years, when Marsha’s horse Nike will be ready to retire. Assume a nominal discount rate of 10% and a forecasted inflation rate of 4%. Marsha’s transporter is a personal outlay, not a business or financial investment, so taxes can be ignored. Hint: All numbers given in the questions are in real terms. Assume CF at end of year, for simplicity. Calculate the NPV of the investment.
Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $36,000. The object is to save on horse transporter rentals.
Marsha had been renting a transporter every other week for $201 per week plus $1.05 per mile. Most of the trips are 90 miles in total. Marsha usually gives the driver a $45 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $.46 per mile. Insurance costs for Marsha’s transporter are $1,250 per year.
The transporter will probably be worth $16,000 (in real terms) after eight years, when Marsha’s horse Nike will be ready to retire. Assume a nominal discount rate of 10% and a
Calculate the NPV of the investment. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
NPV $
7784 is incorrect.
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 4 images
