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SaveHelpSubrExitCheck my workMarsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $49,000. The object is to save onhorse transporter rentals.Marsha had been renting a transporter every other week for $214 per day plus $1.70 per mile. Most of the trips are 80 or 100 miles intotal. Marsha usually gives Joe Laminitis, the driver, a $30 tip. With the new transporter she will only have to pay for diesel fuel andmaintenance, at about $0.59 per mile. Insurance costs for Marsha's transporter are $1,900 per year.The transporter will probably be worth $29,000 (in real terms) after eight years, when Marsha's horse Spike will be ready to retire.Assume a nominal discount rate of 8% and a 2% forecasted inflation rate. Marsha's transporter is a personal outlay, not a business orfinancial investment, so taxes can be ignored.Calculate the NPV of the investment. (Do not round intermediate calculations. Round your answer to the nearest whole dollaramount.)NPVNext>3 of 9< Prev

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Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $49,000. The object is to save on
horse transporter rentals.
Marsha had been renting a transporter every other week for $214 per day plus $1.70 per mile. Most of the trips are 80 or 100 miles in
total. Marsha usually gives Joe Laminitis, the driver, a $30 tip. With the new transporter she will only have to pay for diesel fuel and
maintenance, at about $0.59 per mile. Insurance costs for Marsha's transporter are $1,900 per year.
The transporter will probably be worth $29,000 (in real terms) after eight years, when Marsha's horse Spike will be ready to retire.
Assume a nominal discount rate of 8% and a 2% forecasted inflation rate. Marsha's transporter is a personal outlay, not a business or
financial investment, so taxes can be ignored.
Calculate the NPV of the investment. (Do not round intermediate calculations. Round your answer to the nearest whole dollar
amount.)
NPV
Next>
3 of 9
< Prev
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Save Help Subr Exit Check my work Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $49,000. The object is to save on horse transporter rentals. Marsha had been renting a transporter every other week for $214 per day plus $1.70 per mile. Most of the trips are 80 or 100 miles in total. Marsha usually gives Joe Laminitis, the driver, a $30 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $0.59 per mile. Insurance costs for Marsha's transporter are $1,900 per year. The transporter will probably be worth $29,000 (in real terms) after eight years, when Marsha's horse Spike will be ready to retire. Assume a nominal discount rate of 8% and a 2% forecasted inflation rate. Marsha's transporter is a personal outlay, not a business or financial investment, so taxes can be ignored. Calculate the NPV of the investment. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.) NPV Next> 3 of 9 < Prev

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check_circleAnswer
Step 1

Calculation of NPV of the Investment:

The renting is done for every other week which means there are 26 weeks in a year.

Excel Spreadsheet:

A
C
E
G
H
I
J
1
Year
Particulars
0
1
2
3
4
5
6
7
3 Initial Investment
4 Periodic Savings
($49,000)
$29,000
$10,322
$10,322
$10,322
$10,322
$10,322
$10,322
$10,322
$10,322
5 Less: Insurance Costs
6 Less: Fuel Costs
$1,900
$1,380.60 $1,380.60 $1,380.60 $1,380.60 $1,380.60 $1,380.60 $1,380.60 $1,380.60
($49,000) $7,041.40$7,041.40 $7,041.40 $7,041.40 S7,041.40 $7,041.40 $7,041.40 $36,041.40
$1,900
$1,900
$1,900
$1,900
$1,900
$1,900
$1,900
Net Cash Flows
8 Real Interest Rate
5.88%
9 FVIF at 5.88%
1.1211
1.3307
1.4918
1.0000
1.0588
1.1870
1.2568
1.4089
1.5795
10 PV of Cash Flows
($49,000) $6,650.36 |$6,281.03 $5,932.22|$5,602.78|$5,291.63$4,997.76|$4,720.21 $22,818.66
$13,294.65
11
Net Present Value of the Investment
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A C E G H I J 1 Year Particulars 0 1 2 3 4 5 6 7 3 Initial Investment 4 Periodic Savings ($49,000) $29,000 $10,322 $10,322 $10,322 $10,322 $10,322 $10,322 $10,322 $10,322 5 Less: Insurance Costs 6 Less: Fuel Costs $1,900 $1,380.60 $1,380.60 $1,380.60 $1,380.60 $1,380.60 $1,380.60 $1,380.60 $1,380.60 ($49,000) $7,041.40$7,041.40 $7,041.40 $7,041.40 S7,041.40 $7,041.40 $7,041.40 $36,041.40 $1,900 $1,900 $1,900 $1,900 $1,900 $1,900 $1,900 Net Cash Flows 8 Real Interest Rate 5.88% 9 FVIF at 5.88% 1.1211 1.3307 1.4918 1.0000 1.0588 1.1870 1.2568 1.4089 1.5795 10 PV of Cash Flows ($49,000) $6,650.36 |$6,281.03 $5,932.22|$5,602.78|$5,291.63$4,997.76|$4,720.21 $22,818.66 $13,294.65 11 Net Present Value of the Investment

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Step 2

Excel Workings:

...
B
E
F
G
H
Year
Particulars
8
29000
3
6
3 Initial Inves-49000
4 Periodic Sa
-(214+1.7* ( ( 80+100)/2)+ 30 ) *26
1900
- ( ((80+100 ) /2)*0.59)*26
-C3-C4-C5-C6
-E4
-C4
D4
-F4
-G4
H4
14
5 Less: Insura
1900
1900
1900
1900
1900
1900
1900
- F6
-D6
-E6
-G6
-H6
6 Less: Fuel
-C6
l6
Net Cash F-B3
-D3 +D4- D5 - D6E3+E4- ES -E6 -F3+F4- FS-F6G3+ G4-G5-G6 -H3+H4-H5-H6
- 13-14-15-16
- 13+ J4 - J5 - 16
7
8 Real Interes-((1+8 % ) ( 1+29% ) ) -1
9 FVIF at 5.8-(1-5.88% ) B2
10 PV of Cash-B7/ B9
-(1+5.88 % ) C2
- C 7 / C 9
-(1+5.88 % ) D2(15.88 % ) E2-(1-5.88 %) F2 | - ( 1+5.88% ) G2
=D7/D9
( 1+ 5.88% ) H2 - ( 1+5.88 % ) 12 |- (1+5.88 % ) 12
- I17/119
-E7/ E9
- F7/ F9
-J7/ 39
-G7/G9
17/19
-SUM(B10:J10)
Net Present Value of the Investment
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B E F G H Year Particulars 8 29000 3 6 3 Initial Inves-49000 4 Periodic Sa -(214+1.7* ( ( 80+100)/2)+ 30 ) *26 1900 - ( ((80+100 ) /2)*0.59)*26 -C3-C4-C5-C6 -E4 -C4 D4 -F4 -G4 H4 14 5 Less: Insura 1900 1900 1900 1900 1900 1900 1900 - F6 -D6 -E6 -G6 -H6 6 Less: Fuel -C6 l6 Net Cash F-B3 -D3 +D4- D5 - D6E3+E4- ES -E6 -F3+F4- FS-F6G3+ G4-G5-G6 -H3+H4-H5-H6 - 13-14-15-16 - 13+ J4 - J5 - 16 7 8 Real Interes-((1+8 % ) ( 1+29% ) ) -1 9 FVIF at 5.8-(1-5.88% ) B2 10 PV of Cash-B7/ B9 -(1+5.88 % ) C2 - C 7 / C 9 -(1+5.88 % ) D2(15.88 % ) E2-(1-5.88 %) F2 | - ( 1+5.88% ) G2 =D7/D9 ( 1+ 5.88% ) H2 - ( 1+5.88 % ) 12 |- (1+5.88 % ) 12 - I17/119 -E7/ E9 - F7/ F9 -J7/ 39 -G7/G9 17/19 -SUM(B10:J10) Net Present Value of the Investment

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