You own an old “water skiing” motor boat that is a real gas guzzler. It is10 years old and can be sold now for $3,000 cash. Assume its market value (MV) in two years will be $500. The annual maintenance expenses are expected to be $400 into the foreseeable future, and the boat averages only 2 miles per gallon of fuel. Gasoline costs $5.00 per gallon, and the boat will be used for about 200 miles per year. If you sell the old boat, you can buy a newer model boat for $10,000. It will be under a maintenance warranty for two years, so this expense is negligible. The newer boat will average 10 miles per gallon of fuel and will have an MV of $7,000 in two years. Use a two-year study period to determine which alternative is preferred. The MARR is 15% per year. State your assumptions.
You own an old “water skiing” motor boat that is a real gas guzzler. It is
10 years old and can be sold now for $3,000 cash. Assume its market value (MV) in two years will be $500. The annual maintenance expenses are expected to be $400 into the foreseeable future, and the boat averages only 2 miles per gallon of fuel. Gasoline costs $5.00 per gallon, and the boat will be used for about 200 miles per year. If you sell the old boat, you can buy a newer model boat for $10,000. It will be under a maintenance warranty for two years, so this expense is negligible. The newer boat will average 10 miles per gallon of fuel and will have an MV of $7,000 in two years. Use a two-year study period to determine which alternative is preferred. The MARR is 15% per year. State your assumptions.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
