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Transco plans on purchasing a bus for $75,000 that will have a capacity of 40 passengers. As an alternative, a larger bus can be purchased for $95,000 that will have a capacity of 50 passengers. The salvage value of either bus is estimated to be $8,000 after a 10-year life. If the annual net profit of $400 can be realized per passenger, which alternative should be recommended using a management- suggested interest rate of 15%? Using the actual cost of money at 7%?

Transco plans on purchasing a bus for $75,000 that will have a capacity of 40 passengers. As an alternative, a larger bus can be purchased for $95,000 that will have a capacity of 50 passengers. The salvage value of either bus is estimated to be $8,000 after a 10-year life. If the annual net profit of $400 can be realized per passenger, which alternative should be recommended using a management- suggested interest rate of 15%? Using the actual cost of money at 7%?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Problem 6 Transco plans on purchasing a bus for $75,000 that will have a capacity of 40 passengers. As an alternative, a larger bus can be purchased for $95,000 that will have a capacity of 50 passengers. The salvage value of either bus is estimated to be $8,000 after a 10-year life. If the annual net profit of $400 can be realized per passenger, which alternative should be recommended using a management- suggested interest rate of 15%? Using the actual cost of money at 7%?
Transcribed Image Text:Problem 6 Transco plans on purchasing a bus for $75,000 that will have a capacity of 40 passengers. As an alternative, a larger bus can be purchased for $95,000 that will have a capacity of 50 passengers. The salvage value of either bus is estimated to be $8,000 after a 10-year life. If the annual net profit of $400 can be realized per passenger, which alternative should be recommended using a management- suggested interest rate of 15%? Using the actual cost of money at 7%?
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