Determine which alternative is preferred

Reference no: EM131506820

Question: You own an old "water skiing" motor boat that is a real gas guzzler. It is 10-years old and can be sold now for $3,000 cash. Assume its market value (MV) in 2 years will be $500. The annual maintenance expenses are expected to be $400 into the foreseeable future, and the boat averages only 2 miles per gallon of fuel. Gasoline costs $5.00 per gallon, and the boat will be used for about 200 miles per year. If you sell the old boat, you can buy a newer model boat for $10,000. It will be under a maintenance warranty for 2 years, so this expense is negligible. The newer boat will average 10 miles per gallon of fuel and will have an MV of $7,000 in 2 years. Use a 2-year study period to determine which alternative is preferred. The MARR is 15% per year. State your assumptions.

Reference no: EM131506820

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