Question
You are determining whether to purchase a tree trimmer on sale for $200 today. There's a 40% chance you will move houses in six month
You are determining whether to purchase a tree trimmer on sale for $200 today. There's a 40% chance you will move houses in six month and no longer have any use for the trimmer ($0 value with no resale option). You will not trim your trees for six months, but the price of the trimmer will be $300 if you wait six months until you need to use it. Use 8% as your discount rate.
What is the NPV if you buy the trimmer today?
What is the NPV if you wait 6 months to buy the trimmer?
What should you do?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
To calculate the Net Present Value NPV we can use the following formula NPV CFt1 rt where NPV ...
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Step: 2
Step: 3
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Financial Accounting and Reporting a Global Perspective
Authors: Michel Lebas, Herve Stolowy, Yuan Ding
4th edition
978-1408066621, 1408066629, 1408076861, 978-1408076866
