Question
Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $38,000. The object is to save on horse transporter rentals.
Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $38,000. The object is to save on horse transporter rentals. Marsha had been renting a transporter every other week for $203 per week plus $1.15 per mile. Most of the trips are 90 miles in total. Marsha usually gives the driver a $35 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $.48 per mile. Insurance costs for Marshas transporter are $1,350 per year. The transporter will probably be worth $18,000 (in real terms) after eight years, when Marshas horse Nike will be ready to retire. Assume a nominal discount rate of 7% and a forecasted inflation rate of 3%. Marshas 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
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