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
Related questions
Question
Transcribed Image Text:10. Triple Crown is considering installing a new cooler (equipment) in order to increase the volume
and variety of beverages they can offer. The new cooler will cost $26,000. It is expected to last 7
years but only if the cooler is overhauled (REPAIRED) at a cost of $4,000 at the end of year 4. The
new cooler is expected to have a $2,000 salvage value at the end of 7 years. The new cooler is
expected to generate additional revenues of $15,000 per year with an increase in expenses of $9,000
per year. Triple Crown's discount rate is 12%. What is the net present value of this investment
opportunity? Should they invest in the cooler?
Hint: determine the PV of each item. Be careful if the item is an annuity (anmual) or one time only event.
PV of an annuity of S1
PV of S1
Time
10%
12%
14%
Time
10%
12%
14%
period
1
period
0.909
0.893
0.877
1
0.909
0.893
0.877
1.736
1.690
1.647
2
0.826
0.797
0.769
3
2.487
2.402
2.322
3
0.751
0.712
0.675
4
3.170
3.037
2.914
4
0.683
0.636
0.592
5
3.791
3.605
3.433
5
0.621
0.567
0.519
6
4.355
4.111
3.889
6.
0.564
0.507
0.456
7
4.868
4.564
4.288
7
0.513
0.452
0.400
8
5.335
4.968
4.639
8
0.467
0.404
0.351
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
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…
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