Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $41,000....

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Marsha Jones has bought a used Mercedes horse transporter forher Connecticut estate. It cost $41,000. The object is to save onhorse transporter rentals.
Marsha had been renting a transporter every other week for $206per week plus $1.30 per mile. Most of the trips are 90 miles intotal. Marsha usually gives the driver a $45 tip. With the newtransporter she will only have to pay for diesel fuel andmaintenance, at about $.51 per mile. Insurance costs for Marsha’stransporter are $1,500 per year.
The transporter will probably be worth $21,000 (in real terms)after eight years, when Marsha’s horse Nike will be ready toretire. Assume a nominal discount rate of 8% and a forecastedinflation rate of 3%. Marsha’s transporter is a personal outlay,not a business or financial investment, so taxes can be ignored.Hint: All numbers given in the questions are in realterms. Assume CF at end of year, for simplicity.
Calculate the NPV of the investment. (Do not roundintermediate calculations. Round your answer to the nearest wholedollar amount.)

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3.9 Ratings (757 Votes)

ANNUAL COST OF RENTING A TRANSPORTER 206 X 26 weeks 130 X 90 X 26 45 X 26 9568 ANNUAL COST OF OWNING A TRANSPORTER 051 X 90 X 26 1500 26934 ANNUAL See Answer

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Marsha Jones has bought a used Mercedes horse transporter forher Connecticut estate. It cost $41,000. The object is to save onhorse transporter rentals.Marsha had been renting a transporter every other week for $206per week plus $1.30 per mile. Most of the trips are 90 miles intotal. Marsha usually gives the driver a $45 tip. With the newtransporter she will only have to pay for diesel fuel andmaintenance, at about $.51 per mile. Insurance costs for Marsha’stransporter are $1,500 per year.The transporter will probably be worth $21,000 (in real terms)after eight years, when Marsha’s horse Nike will be ready toretire. Assume a nominal discount rate of 8% and a forecastedinflation rate of 3%. Marsha’s transporter is a personal outlay,not a business or financial investment, so taxes can be ignored.Hint: All numbers given in the questions are in realterms. Assume CF at end of year, for simplicity.Calculate the NPV of the investment. (Do not roundintermediate calculations. Round your answer to the nearest wholedollar amount.)