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- Your friend Harold is trying to decide whether to buy or lease his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $27,500, and Harold expects to spend about $600 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $10,900. Alternatively, Harold could lease the same vehicle for five years at a cost of $3,575 per year, including maintenance. Assume a discount rate of 12 percent. Required: Calculate the net present value of Harold’s options. (Future Value of $1,Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) Advise Harold about which option he should choose.Chris is considering submitting a bit for the requested project, which involves building four houses per year for the next 3 years for a gated community. To complete such project, Chris would need to buy tools in the amount of $66,000, which would be completely depreciated over the project’s lifespan assuming straight-line depreciation, and such tools can be sold for $40,000 at the end of the project. Net working capital would be $16,000 over the life span of the project. The project’s variable cost would be $88,000 per house, and fixed cost would be $18,000 each year. The tax rate is 34% and Chris’ require rate of return is 14%. How much at minimum Chris should bid for each house? (Rounded to the nearest $500). A. $115,000 B. $98,500 C. $97,500 D. $96,500 E. $95,50Vidhi is investing in some rental property in Collegeville and is investigating her income from the investment. She knows the rental revenue will increase each year, but so will the maintenance expenses. She has been able to generate the data that follows regarding this investment opportunity. Assume that all cash flows occur at the end of each year and that the purchase andsale of this property are not relevant to the study. If Vidhi’s MARR = 6% per year, what is the FW of Vidhi’s projected net income?
- Mr. Gallagher is considering replacing his five-year-old car with a new one. The new car will cost $30,000, taking into consideration the trade-in value of the old car. The new car will save Mr. Gallagher $5,000 per year in terms of gasoline, repairs, and maintenance. Mr. Gallagher plans to keep this new car for five years. At the end of five years, the car can be sold for $8,000. What is the internal rate of return on the new car? Select one: a. 1.40% b. 2.80% c. 5.00% d. 8.14% e. 9.43%Seema is looking at an investment in upgrading an inspection line at her plant. The initial cost would be $300,000 with a salvage value of $50,000 after 5 years. Use the capital recovery formula to determine how much money must be saved every year to justify the investment at 8% interest rate.Susan is considering buying a 2011 Smart ForTwo costing $21,635 and finds that the retaining values of the vehicle over next five years are as follows: Percent of the total value retained after 36 months: 28% Percent of the total value retained after 60 months: 17%If her interest rate is 6% compounded annually, what is the ownership cost of the vehicle over three years? five years?
- Jerry owns a restaurant and has the opportunity to buy a high-quality espresso coffee machine for $5,000. After carefully studying projected costs and revenues, Jerry estimates that the machine will produce a net cash flow of $1,600 annually and will last for five years. He determines that an interest rate of 10% is an adequate return on investment for his business. Calculate the present value of the machine to Jerry. Based on your calculation, do you think a decision to purchase the machine would be wise?Yang is considering buying an asset that, starting 5 years from now, will pay $10,000 per year forever. Assume that the required return is 7.25%. What is the most Yang should pay for this asset?Manny Kurr is considering the purchase of a beauty salon. The initial costof this purchase is $16,000. The after-tax cash flows from this investmentshould be $4,000 per year for the next 5 years. His opportunity cost of capitalis 10 percent. Calculate the following:a. Payback—Should Manny buy the beauty salon based on payback if hisrequired payback is less than 3 years?b. The present value of the benefits (PVB),c. The present value of the costs (PVC),d. The net present value (NPV )—Should Manny buy the beauty salon basedon NPV rules?e. Profitability index (PI )—what does the profitability index mean in terms ofbuying the beauty salon?f. Internal rate of return (IRR), (Hint: Use interpolation)—should Manny buythe beauty salon based on IRR rules?g. Accounting rate of return (ARR)—Should Manny buy the beauty salonbased on the ARR?
- Mario wants to take a trip that costs $4,750 (future value), but currently he only has $2,260 (present value - enter as a negative number) saved. If Mario invests this money at 7% compounded annually, how long will it take for his investment to grow to the needed amount of $4,750? Round to the nearest whole number representing the number of yearsPlease solve correctly . You are considering purchasing a dump truck. The truck will cost $75,000 and have operating and maintenance costs that start at $18,000 the first year and increases by $2,000 per year. Assume that the salvage value at the end of five years is $22,000 and interest rate is 15%. What is the annual operation and maintenance costs of owning this vehicle?jordan is considering purchasing an investment costing $42,000 that will save power costs of $14,000 a year for each of 6 years. The investment will be depreciated on a straight-line basis with $0 salvage value. The tax rate is 40%. What are the cash flows after taxes each year?