Question

Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $36,000. The object is to save on horse transporter rentals. Marsha had been renting a transporter every other week for $201 per week plus $1.05 per mile. Most of the trips are 90 miles in total. Marsha usually gives the driver a $45 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $.46 per mile. Insurance costs for Marsha's transporter are $1,250 per year The transporter will probably be worth S 16,000 in real terms a er egh years, when Marsha s orse e il be ready to retire. Assume a ror a d count rate o 10% ar a ore ste ation rate O Mars as 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 real terms. Assume CF at end of year, for simplicity. Calculate the NPV of the investment. (Do not round intermediate calculations. Round your answer to the nearest whole dollaramount.) NPV

Answer 1

We will calculate the incremental cash flow and then calculate the NPV