Vashti has a suburban home within walking distance of the railroad. She commutes to work in the city at a costof $366.50 a month. She also rents a car every weekend, which costs $450 a month including insurance and fuel.She is considering purchasing a new car for cash to replace commuting and rental costs. It would cost $22,000,get 31 miles per gallon, and have an estimated resale value of $8,000 after five years. After buying this car,Vashti would drive 20,000 miles per year and have maintenance and repairs of $1,400 per year, insurance of$1,500 per year, and fuel costs of $2.50 per gallon. Assume that all costs occur at the end of the year and thatshe sells the car at the end of the fifth year. If Vashti's discount rate is 7 percent after tax, should she purchasethe car?

Concept of replacement in capital budgeting refers to comparing cost or two alternatives and cost…

Answered: Vashti has a suburban home within…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Winsome is considering borrowing $10,300 over seven years to buy a new compact SUV valued at $23,500 drive away. Winsome has been offered a trade-in value of $13,500 on her current vehicle. She believes that, with the lower registration, insurance, servicing, and fuel costs of a new, smaller vehicle, she will save approximately $675 a year on her vehicle operation expenses over each of the next 7 years. Winsome has been looking at the finance contracts available to her from alternative banks and credit unions. She has had the following annual interest rates and loan establishment fees quoted to her for a car loan (compounding and repayments are monthly): 7.35 per cent per annum, application and processing fee $150; 7.65 per cent per annum, application and processing fee $125; and 7.05 per cent per annum, application and processing fee $250. What are the loan repayment and which option is the best loan?
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. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)
Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $35,000. The object is to save on horse transporter rentals. Marsha had been renting a transporter every other week for $200 per day plus $1.00 per mile. Most of the trips are 80 or 100 miles in total. Marsha usually gives the driver, Joe Laminitis, a $40 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $0.45 per mile. Insurance costs for Marsha’s transporter are $1,200 per year. The transporter will probably be worth $15,000 (in real terms) after eight years, when Marsha’s horse Spike, will be ready to retire. Assume a nominal discount rate of 9% and a 3% 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.
Kathy plans to move to Maryland and take a job at McCormick as the Assistant Director of HR. She and her husband Stan plan to buy a house in Garrison, MD and their budget is $500,000. They have $100,000 for the down payment and McCormick will pay for closing costs. They are considering either a 30 year mortgage at 4.5% annual rate or a 15 year mortgage at 4%. Calculate the monthly payment for each. Property taxes and insurance will add $1,000 per month to whichever mortgage they choose. What should Kathy and Stan do? 15yr 30yr PMT: Monthly:
Remy works at a small shop and earns $15.293 a year. She enrolled and was accepted in a university. To focus on her schoolwork, she quit her job. Her annual expenses during her undergraduate education are $12,718 for tuition, $1,118 for books, and $5,644 for food. She spends the same on food as before she went to college. Assuming that the given values are in constant dollars, what is her real opportunity cost of attending college for 3 years? Round your answer to the nearest two decimal place and remove the dollar sign.
Marcus is considering a purchase of a new Toyota that costs $20,000 at a local dealership. Marcus estimates the annual cost of maintenance, registration, insurance, and gas to be about $1,500. After extensive internet research, Marcus estimates that he can sell his Toyota in three years for $10,000. What is Marcus's estimated cost of owning and driving the car for three years? $20,000 3 x $1,500+$20,000-$24,500 3x $1,500+$20,000 $10,000 $14,500 $20,000 $10,000 = $10,000
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John and Marsha are buying their first home. It has three bedrooms, two baths, and a two car garage. The total cost is $266,500. They have $35,000 for the down payments. They can finance the difference through their local credit union with a 30 year loan at 3.95%. What will their monthly payment be?
Philip works at a nursing home as an aide and earns $27,000 a year. IF he went to school to get a nursing degree he could earn $50,000 in the first year. Philip knows this but he also knows that tuition and fees at a nearby college could cost about $45,000(total). He can get a student loan for 5% with 10 years to repay the loan. What is the total cost of the student loans?
They are considering trading their car in for a newer used vehicle so that Harry can have dependable transportation for commuting to work. The couple still owes $4,770 to the credit union for their current car, or $265 per month for the remaining 18 months of the 48-month loan. The trade-in value of this car plus $1,000 that Harry earned from a freelance interior design job should allow the couple to pay off the auto loan and leave $1,400 for a down payment on the newer car. The Johnsons have agreed on a sales price for the newer car of $23,000. The money planned for tires will be spent for other incidental taxes and fees associated with the purchase. 1. Using the Garman/Forgue companion website or the information in Table 7-2, calculate the monthly payment for a loan period of three, four, five, and six years at 8 percent APR. Round your answers to the nearest cent. Round Monthly Installment Payment for a Loan in intermediate calculations to the nearest cent.
Angela is buying her first home. She has saved $60, 000 for a downpayment, intending to make a down payment of at least 20% of the purchase price. Angela wants to make an offer on a home which is slightly over her budget at $325,000. As she does not have any additional funds available to increase her downpayment, she needs to consider a high ratio mortgage. Her lender explains that she will need to pay mortgage default insurance premiums, and that the premiums can be paid in cash or financed over the first mortgage term. He provides the following premium rate schedule: Loan - to - Value Ratio Mortgage Default Insurance Premium (As a percentage of mortgage loan) Up to 80% 2.40% Up to 85% 2.80% Up to 90% 3.10% Up to 95% 4.00% Angela is pre- approved for a mortgage with a 25-year amortization period and an equivalent annual interest rate of 6.39% for a five-year term. Payments will be due at the end of each month. If Angela finances the mortgage default insurance premiums over her first…

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