Marsha Jones has bought a used Mercedes horse transporter for
her Connecticut estate. It cost $54,000. The object is to save on
horse transporter rentals.
Marsha had been renting a transporter every other week for $219 per
day plus $1.95 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 $0.64 per mile. Insurance costs for
Marsha’s transporter are $2,150 per year.
The transporter will probably be worth $34,000 (in real terms)
after eight years, when Marsha’s horse Spike will be ready to
retire. Assume a nominal discount rate of 7% and a 4% 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.
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