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Homework answers / question archive / Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate

Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate

Finance

Marsha Jones has bought a used Mercedes horse transporter for her Connecticut estate. It cost $40,000. The object is to save on horse transporter rentals.

 

Marsha had been renting a transporter every other week for $205 per day plus $1.25 per mile. Most of the trips are 80 or 100 miles in total. Marsha usually gives Joe Laminitis, the driver, a $40 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $0.50 per mile. Insurance costs for Marsha's transporter are $1,450 per year.

 

The transporter will probably be worth $20,000 (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.

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