Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $46,000....

Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $46,000. The object is to save on horse transporter rentals. Marsha had been renting a transporter every other week for $211 per week plus $1.55 per mile. Most of the trips are 90 miles in total. Marsha usually gives the driver a $45 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $.56 per mile. Insurance costs for Marsha’s transporter are $1,750 per year. The transporter will probably be worth $26,000 (in real terms) after eight years, when Marsha’s horse Nike will be ready to retire. Assume a nominal discount rate of 7% and a forecasted inflation rate of 2%. Marsha’s 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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jeff jeffy answered 1 year ago

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