Question

Problem 6-12 Project NPV Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $37000. The object is to save on horse transporter rentals Marsha had been renting a transporter every other week for $202 per day plus $110 per mi. Most of the trips are 80 - 100 miles in total. Marsha usually g ves Joe Laminitis, the driver, a $50 to with the new transporter she will only have to pay for diesel fuel and maintenance, at about $0.47 por mile. Insurance costs for Marsha's transporter are $1,300 per year. The transporter will probably be worth $17,000 in real terms) after eight years, when Marsha's horse Spike will be ready to retire. Assume a nominal discount rate of 8% and a 2% forecasted inflation rate. Marsha's transporter is a personal outlay, not a business or financial investment, taxes can be ignored. Calculate the NPV of the investment (Do not round Intermediate calculations. Round your answer to the nearest whole dollar amount.) NDY 5.500

Please give explanation!!

Answer 1

les 12:326 $ 2:3262) Investment Savings Insurance Fuel Net cash flows Discount factor @ 5.88% Present value Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 $ (37,000) $ 17,000 $ 9,126 $ 9,126 $ 9,126 $ 9,126 $ 9,126 $ 9,126 $ 9,126 $ 9,126 =26*(202+50+90*1.1) $ (1,300) $ (1,300) $ (1,300) $ (1,300) $ (1,300) $ (1,300) $ (1,300) $ (1,300)| $(1,099.8) $(1,099.8) $(1,099.8) $(1,099.8) $(1,099.8) $(1,099.8)| $(1,099.8) $(1,099.8) =-90*26*0.47 $ (37,000) $ 6,726 $ 6,726 $ 6,726 $ 6,726 $ 6,726 $ 6,726 $ 6,726 $ 23,726 1.000 0.944 0.892 0.842 0.796 0.751 0.710 0.670 0.633 $ (37,000) $ 6,353 $ 6,000 $ 5,666 $ 5,351 $ 5,054 $ 4,773 $ 4,508 $ 15,019 Net present value $ 15,725 Real interest rate 5.88% =(1+8%)/(1+2%)-1

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