Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Concept explainers

Net Present Value
Net present value is the most important concept of finance. It is used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. The difference between the present value of cash inflow and cash outflow is…
Investment Decision
The term investment refers to allocating money with the intention of getting positive returns in the future period. For example, an asset would be acquired with the motive of generating income by selling the asset when there is a price increase.
Factors That Complicate Capital Investment Analysis
Capital investment analysis is a way of the budgeting process that companies and the government use to evaluate the profitability of the investment that has been done for the long term. This can include the evaluation of fixed assets such as machinery, e…
Capital Budgeting
Capital budgeting is a decision-making process whereby long-term investments is evaluated and selected based on whether such investment is worth pursuing in future or not. It plays an important role in financial decision-making as it impacts the profitab…
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Domestic 

Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $52,000. The object is to save on horse transporter rentals. Marsha had been renting a transporter every other week for $217 per day plus $1.85 per mile. Most of the trips are 80 or 100 miles in total. Marsha usually gives the driver, Joe Laminitis, a $50 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $0.62 per mile. Insurance costs for Marsha's transporter are $2,050 per year. The transporter will probably be worth $32,000 (in real terms) after eight years, when Marsha's horse Spike, will be ready to retire. Assume a nominal discount rate of 10% 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. Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. Answer is complete but not entirely correct. NPV $ 31,915
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Transcribed Image Text:Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $52,000. The object is to save on horse transporter rentals. Marsha had been renting a transporter every other week for $217 per day plus $1.85 per mile. Most of the trips are 80 or 100 miles in total. Marsha usually gives the driver, Joe Laminitis, a $50 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $0.62 per mile. Insurance costs for Marsha's transporter are $2,050 per year. The transporter will probably be worth $32,000 (in real terms) after eight years, when Marsha's horse Spike, will be ready to retire. Assume a nominal discount rate of 10% 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. Note: Do not round intermediate calculations. Round your answer to the nearest whole dollar amount. Answer is complete but not entirely correct. NPV $ 31,915
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