Question

Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $35,000. The object is to save on horse transporter rentals. Marsh had been renting a transporter every other week for $200 per day plus $1.00 per mile. Most of the trips are 80 or 100 miles in total. Marsha usually gives her driver, Joe Laminitis, a $40 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $0.45 per mile. Insurance costs for Marsha’s transporter are $1,200 per year. The transporter will probably be worth $15,000 (in real terms) after eight years, when Marsha’s horse Spike, will be ready to retire. Is the transporter a positive-NPV investment? Assume a nominal discount rate of 9% and a 3% forecasted inflation rate. Marsha’s transporter is a personal outlay, and not a business or financial investment, so taxes can be ignored. (use excel and show functions)

Answer 1

NPV=NET PRESENT VALUE

Cash inflow-CAsh OUTFLOW

I have uploaded excel sheet for you

Please note Excel sheet contains following workings

1.Function for NPV =NPV(Discount rate,array of cash inflow)+cash outflow

2.Calculation for saving =26*(200+40+90*1)

( days=26,rent=200,tip=40, miles average=100+80/2=90)   

3Calculation for Fuel =(90*26*0.45)

4.calculation for Discount rate

Step1 Please see the whole chart:

Step2 NPV FUNCTION PLEASE SEE

Other Workings

SAvings

FUEL

Hence NPV is positive.

I hope as per your requirement Answer is clear on excel sheet please download ,zoom and see if any doubt please ask. I hope it helps Your upvote will help me Please Upvote. Thank You.Good luck.