(Table: Car Costs) The table shows the initial cost outlays of two versions of the Ford Escape and their estimated annualfuel costs. Stu is not sure whether he wants the hybrid or standard model. Although more expensive, the hybrid model hasbetter gas mileage and would save $890 in gas per year. Assume both cars are worthless after six years. At a 7% interestrate, what should Stu do?YearCosts if Hybrid Bought Costs if Standard Bought-$27,000-2,000$22,500-2,890-2,890-2,890-2,890-2,890-2,8902.-2,000-2,000-2,000-2,000346-2,000Buy the standard model, since the net present value of the total cost of the standard is more than that of the hybrid.O Buy the standard, since the net present value of the total cost of the standard is less than that of the hybrid.OBuy the hybrid, since the net present value of the total cost of the hybrid is less than that of the standard.Buy either model, since the net present value of the cost difference between the hybrid and the standard model is zero.

NPV is the difference between Present Value of cash Inflows and Initial Investment. Project with…

(Table: Car Costs) The table shows the initial cost outlays of two versions of the Ford Escape and their estimated annual fuel costs. Stu is not sure whether he wants the hybrid or standard model. Although more expensive, the hybrid model has better gas mileage and would save $890 in gas per year. Assume both cars are worthless after six years. At a 7% interest rate, what should Stu do? Year Costs if Hybrid Bought Costs if Standard Bought -$27,000 -2,000 -2,000 -2,000 -2,000 -2,000 -2,000 -$22,500 -2,890 2,890 -2,890 -2,890 -2,890 -2,890 1. 2. 3 4 6. Buy the standard model, since the net present value of the total cost of the standard is more than that of the hybrid. O Buy the standard, since the net present value of the total cost of the standard is less than that of the hybrid. O Buy the hybrid, since the net present value of the total cost of the hybrid is less than that of the standard. Buy either model, since the net present value of the cost difference between the hybrid and the standard model is zero.

(Table: Car Costs) The table shows the initial cost outlays of two versions of the Ford Escape and their estimated annual fuel costs. Stu is not sure whether he wants the hybrid or standard model. Although more expensive, the hybrid model has better gas mileage and would save $890 in gas per year. Assume both cars are worthless after six years. At a 7% interest rate, what should Stu do? Year Costs if Hybrid Bought Costs if Standard Bought -$27,000 -2,000 -2,000 -2,000 -2,000 -2,000 -2,000 -$22,500 -2,890 2,890 -2,890 -2,890 -2,890 -2,890 1. 2. 3 4 6. Buy the standard model, since the net present value of the total cost of the standard is more than that of the hybrid. O Buy the standard, since the net present value of the total cost of the standard is less than that of the hybrid. O Buy the hybrid, since the net present value of the total cost of the hybrid is less than that of the standard. Buy either model, since the net present value of the cost difference between the hybrid and the standard model is zero.

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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Paula is considering the purchase of a new car. She has narrowed her search to two cars that are equally appealing to her. Car A costs $25,000, and Car B costs $25,400. The manufacturer of Car A is offering 0% financing for 48 months with zero down, while the manufacturer of Car B is offering a rebate of $2000 at the time of purchase plus financing at the rate of 3%/year compounded monthly over 48 months with zero down. If Paula has decided to buy the car with the lower net cost to her, which car should she purchase? (Round numerical values to the nearest cent.) net cost of Car A $ net cost of Car B $ car she should purchas
(Table: Car Costs) The table shows the initial cost outlays of two versions of the Ford Escape and their estimated annual fuel costs. Stu is not sure whether he wants the hybrid or standard model. Although more expensive, the hybrid model has better gas mileage and would save $890 in gas per year. Assume both cars are worthless after six years. At a 7% interest rate, what should Stu do? ITT Costs if Hybrid Bought -$27,000 Costs if Standard Bought -$22,500 Year -2,000 -2,000 -2,890 -2,890 1 3 -2,000 -2,000 -2,000 -2,890 -2,890 -2,890 -2,890 4 6. -2,000 Buy the standard model, since the net present value of the total cost of the standard is more than that of the hybrid. Buy either model, since the net present value of the cost difference between the hybrid and the standard model is zero. Buy the standard, since the net present value of the total cost of the standard is less than that of the hybrid. Buy the hybrid, since the net present value of the total cost of the hybrid is less than…
A consulting engineering firm is considering two models of SUVs for the company principals. A GM model will have a first cost of $36,000, an operating cost of $3100, and a salvage value of $15,000 after 3 years. A Ford model will have a first cost of $32,000, an operating cost of $4000, and also have a $15,000 resale value, but after 4 years. (a) At an interest rate of 15% per year, which model should the consulting firm buy? Conduct an annual worth analysis. Group of answer choices FORD=-11,305 GM=-12, 402 GM=-14,547 FORD=-12,204
You are trying to pick the least expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $13,000 to purchase and which will have OCF of -$1,200 annually throughout the vehicle's expected life of three years as a delivery vehicle; and the Toyota Prius, which will cost $23,000 to purchase and which will have OCF of -$550 annually throughout that vehicle's expected five-year life. Both cars will be worthless at the end of their life. If you intend to replace whichever type of car you choose with the same thing when its life runs out, again and again out into the foreseeable future, and if your business has a cost of capital of 12 percent, what is the difference in the EAC of the two cars? Multiple Choice $413.25 $310.38 $317.88
You are considering buying a new Honda CR-V and are trying to choose between the gas-only model ($26,500 and 28 miles/gallon) and the gas-electric hybrid model ($31,700 and 40 miles/gallon). If gasoline costs $2.80/gallon, how many miles per year must you drive for the hybrid to be worth the extra cost? Assume you will sell the car after 5 years for 60% of what you paid for it (Hondas hold their value really well) and your MARR is 6% per year
You are considering two cars that you plan on making for 5 years. One has an EPA combined city and highway rating of 33 mpg. The second has an EPA rating of 36 mpg. Suppose gasoline costs $3.47 per gallon and you drive $10,000 miles each year. (Round your answer to the nearest cent.) (a) How much (in dollars) will you save in 1 year by purchasing the 36 mpg car? (b) If you deposit that amount at the end of each year for 5 years of ownership into account that earns 4.8% compounded annually, how much (in dollars) will you save over 5 years?
You are trying to pick the least-expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $23,500 to purchase and which will have OCF of −$3,100 annually throughout the vehicle’s expected life of three years as a delivery vehicle; and the Toyota Prius, which will cost $32,000 to purchase and which will have OCF of −$1,600 annually throughout that vehicle’s expected 4-year life. Both cars will be worthless at the end of their life. You intend to replace whichever type of car you choose with the same thing when its life runs out, again and again out into the foreseeable future. If the business has a cost of capital of 11 percent, calculate the EAC. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) Scion EAC_____? Toyota EAC____?
A forklift will last for only 4 more years. It costs $6,500 a year to maintain. For $20,000 you can buy a new lift that can last for 10 years and should require maintenance costs of only $3,500 a year. a-1. Calculate the equivalent cost of owning and operating the forklift if the discount rate is 4% per year. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. a-2. Should you replace the forklift? b-1. Calculate the equivalent cost of owning and operating the forklift if the discount rate is 14% per year. Note: Do not round intermediate calculations. Round your answer to 2 decimal places. b-2. Should you replace the forklift? a-1. Equivalent cost a-2. Should you replace the forklift? b-1. Equivalent cost b-2. Should you replace the forklift? $ Yes $ No 23,594.51 18,256.40
You are trying to pick the least expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $13,000 to purchase and which will have OCF of −$1,200 annually throughout the vehicle's expected life of three years as a delivery vehicle; and the Toyota Prius, which will cost $23,000 to purchase and which will have OCF of −$550 annually throughout that vehicle's expected five-year life. Both cars will be worthless at the end of their life. If you intend to replace whichever type of car you choose with the same thing when its life runs out, again and again out into the foreseeable future, and if your business has a cost of capital of 12 percent, what is the difference in the EAC of the two cars?
You are trying to pick the least expensive car for your new delivery service. You have two choices: the Scion xA, which will cost $19,000 to purchase and which will have OCF of - $2,200 annually throughout the vehicle's expected life of three years as a delivery vehicle; and the Toyota Prius, which will cost $29,000 to purchase and which will have OCF of -$1,150 annually throughout that vehicle's expected 4 - year life. Both cars will be worthless at the end of their life. You intend to replace whichever type of car you choose with the same thing when its life runs out, again and again out into the foreseeable future. If the business has a cost of capital of 11 percent, calculate the EAC. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.) Which one should you choose? multiple choice Scion xA Toyota Prius
Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $26,500, and Harold expects to spend about $500 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $10,500. Alternatively, Harold could lease the same vehicle for five years at a cost of $3,480 per year, including maintenance. Assume a discount rate of 10 percent. Required: Calculate the net present value of Harold’s options. (Future Value of $1,Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Advise Harold about which option he should choose.
You are in the process of getting a new car but are not sure if you should buy or lease. The total cost of the car is $21,000, and you have a $275 monthly spend budget for payments. If you lease the car, the terms of the lease will be forty-eight months at an APR of 2.25%. The residual value of the car is $8,000. If you buy the car, a bank will offer an APR of 2.70% and seven years to repay the loan. You are not required to make a down payment with either the lease or loan options, and payments are made at the end of the month for both options. Should you lease or buy the car given your budget limit of $275 a month? Create a new workbook that shows the difference between leasing and buying the car in terms of monthly payments.

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