(a) Chief Candace Miller of the Jefferson City police department has submitted a proposal to the city's budget director requesting the purchase of ten new police cars. She estimates the department will save $20,000 a year by having the new cars. The cars will cost the city $200.000. Unfortunately, the life span of a police car is only four years at best. Using a 7% discount rate, calculate the net present value of the proposal. Explain the results. 2 NPV 7%D.R. 3 Discount Rate = 7% 4 Cost of cars = $200,000 5 Annual Savings = 20,000 6 Life Span = 4 years 7 8 NPV = Annual Savings / (1+r) = 9 10 YEAR SAVINGS 11 1 $20,000.00 12 2 $20,000.00 13 3 $20,000.00 14 4 $20,000.00 15 $80,000.00 16 17 Amount Invested = 18 Total Present Value of Savings = 19 Total Present Value of Annual Savings = 20 Net Present Value (NPV) = 21 22 Conclusion $0.00 $0.00 $0.00