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A taxicab company maintained accurate records of the expenses for one of its automobiles from January...

A taxicab company maintained accurate records of the expenses for one of its automobiles from January 1, 1996 through January 1, 2002. It is found from the records, the annual operating expense is $4,000.   The maintenance and repair costs are $500 for 1996, $1,000 for year 1997, $1,500 for year 1998, and so on.   What is the net present cost of owning and operating the automobile, if its initial price was $30,000 and the interest rate is 5%?


A. $72,171B. $23,838C. $49,387D. $58,826

Solutions

Expert Solution

Discount rate 5.0000%
Cash flows Year Discounted CF= cash flows/(1+rate)^year Cumulative cash flow
           30,000.000 0                             30,000.00                          30,000.00
              4,500.000 1                               4,285.71                          34,285.71
              5,000.000 2                               4,535.15                          38,820.86
              5,500.000 3                               4,751.11                          43,571.97
              6,000.000 4                               4,936.21                          48,508.18
              6,500.000 5                               5,092.92                          53,601.10
              7,000.000 6                               5,223.51                          58,824.61

Ans = 58,826

jeff jeffy answered 1 year ago
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