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 Suppose you are considering becoming a driver for Uver, a new ride service in your town

Economics Dec 03, 2020

 Suppose you are considering becoming a driver for Uver, a new ride service in your town. You estimate you can buy a car that will be of acceptable Uver standards with $25,000.00 that you saved up. The car is electric, and with free charging stations all over town, you do not have any expenses for using the car. You expect that the car will be useful as an Uver car for the next 3 years. After the 3 years, the battery will be depleted, so the car will not be worth much anymore. The car therefore will not have any residual value after 3 years. You expect to make $13,000.00 per year as an Uver driver. Uver, however, has an odd business model: they pay their drivers at the end of the year. Therefore, while you will spend the $25,000.00 on the car today, you will receive your first $13,000.00 1 year from now, the next $13,000.00 a year after that, and the last $13,000.00 1 year after that. .Give your answer to two Suppose the interest rate is 10.00%. The net present value of becoming an Uver driver is decimals.

Expert Solution

Initial investment = $25000

Annual payment = $13000

Time = 3 years

R = 10%

So,

Net present value = -initial investment + PV of the annual payment for 3 years

Net present value = - 25000 + 13000*(P/A, 10%, 3)

Net present value = - 25000 + 13000*2.48685

Net present value = $7329.05

So, the net present value of becoming uver driver is $7329.05.

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