Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost...
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Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $46,000. The object is to save on horse transporter rentals.
Marsha had been renting a transporter every other week for $211 per day plus $1.55 per mile. Most of the trips are 80 or 100 miles in total. Marsha usually gives the driver, Joe Laminitis, a $45 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $0.56 per mile. Insurance costs for Marshas transporter are $1,750 per year.
The transporter will probably be worth $26,000 (in real terms) after eight years, when Marshas horse Spike, will be ready to retire. Assume a nominal discount rate of 7% and a 2% forecasted inflation rate. Marshas transporter is a personal outlay, not a business or financial investment, so taxes can be ignored.
Calculate the NPV of the investment.
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