Question
Gateway Tours is choosing between two bus models. One is more expensive to purchase and maintain but lasts much longer than the other. Gateway's discount
Gateway Tours is choosing between two bus models. One is more expensive to purchase and maintain but lasts much longer than the other. Gateway's discount rate is 10.8%. The company plans to continue with one of the two models for the foreseeable future. Based on the costs of each shown here: which should it choose? (Note: dollar amounts are in thousands.)
Based on the costs of each model, which should it choose?(Select the best choice below.)
A. Gateway Tours should choose Short and Sweet because the equivalent annual annuity of its costs is smaller.
B. Gateway Tours should choose Short and Sweet because the NPV of its costs is smaller.
C. Gateway Tours should choose Old Reliable because it lasts longer.
D. Gateway Tours should choose Old Reliable because the equivalent annual annuity of its costs is smaller.
\begin{tabular}{lllllllll} Model & Year 0 & Year 1 & Year 2 & Year 3 & Year 4 & Year 5 & Year 6 & Year 7 \\ \hline Old Reliable & $202 & $4.2 & $4.2 & $4.2 & $4.2 & $4.2 & $4.2 & $4.2 \\ Short and Sweet & $101 & $2.1 & $2.1 & $2.1 & $2.1 & & & \\ \hline \end{tabular}Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started