The board of education for the Central Catskill School District is considering the acquisition of several minibuses for use in transportingstudents to school. Five of the school district's bus routes are underpopulated, with the result that the full-size buses on those routesare not fully utilized. After a careful study, the board has decided that it is not feasible to consolidate these routes into fewer routesserved by full-size buses. The area in which the students live is too large for that approach, since some students' bus ride to schoolwould exceed the state maximum of 60 minutes.The plan under consideration by the board is to replace five full-size buses with eight minibuses, each of which would cover a muchshorter route than a full-size bus. The bus drivers in this rural school district are part-time employees whose compensation costs theschool district $21,000 per year for each driver. In addition to the drivers' compensation, the annual costs of operating and maintaininga full-size bus amount to $50,000. In contrast, the board projects that a minibus will cost only $20,000 annually to operate andmaintain. A minibus driver earns the same wages as a full-size bus driver. The school district controller has estimated that it will costthe district $15,660, initially, to redesign its bus routes, inform the public, install caution signs in certain hazardous locations, and retrainits drivers.A minibus costs $27,000, whereas a full-size bus costs $130,000. The school district uses straight-line depreciation for all of its long-lived assets. The board has two options regarding the five full-size buses. First, the buses could be sold now for $16,000 each.Second, the buses could be kept in reserve to use for field trips and out-of-town athletic events and to use as backup vehicles whenbuses break down. Currently, the board charters buses from a private company for these purposes. The annual cost of charteringbuses amounts to $34,000. The school district controller has estimated that this cost could be cut to $6,000 per year if the five buseswere kept in reserve. The five full-size buses have five years of useful life remaining, either as regularly scheduled buses or as reservebuses. The useful life of a new minibus is projected to be five years also.Central Catskill School District uses a hurdle rate of 14 percent on all capital projects.Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)Required:3-a. Suppose the board of education chooses to buy the minibuses. Calculate the net present value of the following options:3-b. Should the full-size buses be sold now or kept in reserve?4-a. From your answer to requirement (3), you know the best option for the board to choose regarding the full-size buses if theminibuses are purchased. Now you can ignore the other option. Compute the net-present-value of purchasing the minibuses.4-b. Should the minibuses be purchased?5. Compute the internal rate of return on the proposed minibus acquisition.Complete this question by entering your answers in the tabs below.Req 3AReq 3BReq 4ASuppose the board of education chooses to buy the minibuses. Calculate the net present value of the following options: (Donot round intermediate calculations. Round your answers to the nearest dollar amount.)Req 4BFull-size buses are soldFull-size buses are kept in reserveReq 5Net Present Value

NET PRESENT VALUE:Net Present Value (NPV) is a financial concept widely used in investment analysis and capital budgeting to assess the profitability and desirability of an investment or project. It takes into account the time value of money, which recognizes that the value of money today is worth more than the same amount in the future due to factors like inflation and the opportunity cost of capital. NPV helps individuals and businesses make informed decisions about investments by considering the potential returns and costs in present value terms.Net Present Value is a fundamental financial tool that allows individuals and businesses to evaluate the financial viability of investments by comparing the present value of cash inflows and outflows.IRR (Internal Rate of Return)IRR is the discount rate at which the net present value (NPV) of cash flows from an investment becomes zero. In other words, it's the rate of return that makes the present value of cash inflows equal to the present value of cash outflows for a project.IRR is used to evaluate the attractiveness of an The investment. If the calculated IRR is higher than the MARR, the investment is potentially worth pursuing, as it indicates that the project's returns are greater than the required rate of return.Computation of NPV of two options for the Five Full Size Buses:The cost of redesign and training is given as $15,660.Formula Table:Calculation Table:3.b) It is observed that the Net Present Value for the given alternative of full-size buses kept for reserve is positive and the same is negative in the case of full-size buses to be sold. Hence it is observed to buy minibuses, and suggested to carry on the services with full size buses for catering service trips. Computation of NPV of Mini Buses :Formula Table:Calculation Table:Mini Bus Purchase has having negative NPV of -$1,643.58. So, a minibus should not be purchased.Computation of IRR for Mini Buses Purchase:Formula Table :Calculation Table:Therefore the IRR of purchasing mini buses is 16.67%. Based on IRR criteria if IRR is greater the than the hurdle rate the project can be undertaken.3. a) The NPV if full-size buses are sold is -$58,966.82 and if full-size buses are kept as reserve is $248,971.33.3. b) Hence it is observed to buy minibuses and suggested to carry on the services with full-size buses for catering service trips.4. a) Mini Bus Purchase has having negative NPV of -$1,643.58.4. b) So, a minibus should not be purchased.5) Therefore the IRR of purchasing mini buses is 16.67%. Based on IRR criteria if IRR is greater than the hurdle rate the project can be undertaken.

Answered: Required: 3-a. Suppose the board of…

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

See similar textbooks

Similar questions

Consider a policy that has benefits and costs that accrue in the following way: Year 0: Benefits = 0; Costs = 100. Year 1: Benefits = 20; Costs = 25. Year 2: Benefits = 40; Costs = 20. Year 3: Benefits = 60; Costs = 20. Year 4: Benefits = 80; Costs = 20. If the social discount rate is 8%, the net present value of the policy is Please report your answer out to at least two digits (e.g., 4.44 or -0.26). Answer:
More real estate Consider the Albuquerque home sales from Exercise 29 again. The regression analysis gives the model Price = 47.82 + 0.061 Size. a) Explain what the slope of the line says about housing prices and house size. b) What price would you predict for a 3000-square-foot house in this market? c) A real estate agent shows a potential buyer a 1200-square- foot home, saying that the asking price is $6000 less than what one would expect to pay for a house of this size. What is the asking price, and what is the $6000 called?
28) ABC Corporation is concerned that the following project has some problem with IRR. Year 0 1 2 4 5 -150-120 CF_Project 700 -100-90 How many discount rates produce a zero NPV for this project? A) One, a discount rate of 0% B) One, a discount rate of 36% C) One, a discount rate of 69% D) Two, discount rates of 0% and 36% E) Two, discount rates of 0% and 69% F) Two, discount rates of 36% and 69% G) None H) None of the above 29) ABC Corporation is considering an investment of $400 million with expected after-tax cash inflows of $102 million per year for seven years. The required rate of return is 10%. However, there is a possibility that the project will not get the required level of investments and ABC Corporation will have no other choice but to proceed with available funding (90% of the required investments). In this case, the after-tax cash inflows of $91,8 million per year are expected for seven years. As a result, on the NPV profile of a project: A) the vertical intercept shifts…
solve, dont use excel. dont write the answer in a paper becuse of the handwriting. thanks
separate solution please for a and b. Thank you
E4 Use AW analysis. Texas Popcorn Corporation is planning to fully automate it process. The company CEO is currently looking into three options. Options A costs $450,000, AOC of $55,000, and salvage value of $85,000 after 3 years. Option B will cost $720,000 with an AOC of $68,000 and salvage of $95,000 after 4 years. Option C cost $800,000 with an AOC of $95,000 and salvage of $125,000 after 6 years. Which machine should the company select at an interest rate of 10% per year? Assume the project service life is 12 years. Use AW analysis to solve.
In this part of the project, you will be purchasing the home you chose in the Budget Project. You will need to obtain a loan from a financial institution since you cannot pay cash for your home. You will be researching three different loan scenarios and determining which loan option best fits your situation and needs. Purchase price of the home you chose from the Budget Project: ________$431,873______ Part 1: Financing your home Loan Scenario 1: In this scenario, your financial institution is offering you a 30-year fixed mortgage with a 20% down payment at a 3.43% fixed rate. Determine the following: Calculate the down payment for this loan. How much will you need to finance from the bank for this loan? What is your monthly payment? Use technology or the monthly payment formula in your text to get the monthly payment for this loan. What is the total cost of the loan over 30 years? How much of this cost is interest? What is the total you will expect to pay at closing for this loan…
Answer the given question with a proper explanation and step-by-step solution. Please provide the answer using the math tool otherwise I give the downvote.
The company you work for is evaluating projects to upgrade their information management systems. Two projects under consideration are an upgrade of the account management system with an IRR of 8% and an upgrade of the resource management system with an IRR of 5%. If the discount rate is actually 6%, which project should the company undertake?
Sun Coast Tours is considering purchasing a new boat for use in its tour business. Relevant information concerning the boat is as follows: (Ignore income taxes.) Purchase cost Annual net cash inflows that will be provided by the boat Life of the boat Required: 1-a. Compute the payback period for the boat. (Round your answer to 1 decimal place.) Payback period Yes O No 1-b. If the company rejects all proposals with a payback period of more than five years, will the boat be purchased? year(s) Simple rate of return $232,000 $ 55,000 2-a. Compute the simple rate of return on the boat. Use straight-line depreciation based on the boat's useful life, assuming $13,600 salvage value. (Round your answer to 1 decimal place.) Yes % 2-b. Will the boat be purchased if the company's required rate of return is 14%? 14 years
Vancouver Shakespearean Theater's board of directors is considering the replacement of the theater's lighting system. The old system requires two people to operate it, but the new system would require only a single operator. The new lighting system will cost $115,700 and save the theater $24,000 annually for the next eight years. Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Exercise 16-28 New Present Value with Different Discount Rates (Section 1) (LO 16-1) Required: 1-a. Prepare a table showing the proposed lighting system's net present value for each of the following discount rates: 8 percent, 10 percent, 12 percent, 14 percent, and 16 percent. 1-b. Based on your findings in requirement 1-a., Which statement is true? Complete this question by entering your answers in the tabs below. Req 1A Prepare a table showing the proposed lighting system's net present value for each of the following discount rates: 8 percent, 10 percent, 12 percent, 14…
8.12 US Airport Authority (USAA) is entertaining three independent proposals presented in the table below for Gator Regional Airport. USAA uses a MARR of 12 percent and has no budget constraint. Using B/C ratio and PW values, which of the following projects are economically justified and should be undertaken by USAA to maximize the services to the public? New Parking Garage (NPG) Flight Information Screen (FIS) Gate Expansion (GE) (in millions) First cost (P) $120 $3 $50 Annual operating cost (AOC) Annual benefits (B) $5 $0.5 $3 $25 $1.0 $6 Disbenefits at the time $5 $0 $2 zero (D) Salvage value (S) Life, years $15 $0.4 $5 20 25

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

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

SEE MORE TEXTBOOKS