Question
A transit company is considering two alternative buses to transport people between cities that are in the same region. A gas-powered bus has a cost
A transit company is considering two alternative buses to transport people between cities that are in the same region. A gas-powered bus has a cost of $55,000, and will produce end-of-year net cash flows of $22,000 per year for 4 years. A new electric bus will cost $90,000, and will produce cash flows of $28,000 per year for 8 years. The company must provide bus service for 8 years, after which it plans to give up its franchise and to cease operating the route. Inflation is not expected to affect either costs or revenues during the next 8 years. If the cost of capital is 16%, by what amount will the better project increase the companys value (rounded to the nearest dollar) over the worse project?
a. $6,556
b. $(14,432)
c. $13,112
d. $21,438
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