Discuss the capital budgeting

Reference no: EM1313296

Discuss the Capital budgeting

The O'Regan Ambulance Paramedics want to buy a new ambulance for $60,000 that will last for five years. They will pay for the acquisition and maintenance of the ambulance partially from donations and partially from receipts from the town. The Town has agreed to reimburse O'Regan $50 for each run it makes using the new ambulance. They expect to make 200 trips per year with the ambulance. It will cost $1,000 per year to maintain the vehicle. The squad uses a discount rate of 6 percent. How much will the squad need in donations to its capital fund this year to make the purchase a break-even proposition? (Hint: What is the net present value of the costs of buying and operating the ambulance over its lifetime, less the payments that will be received from the Town? Are the payments from the Town sufficient? If not, how much must be raised in donations before the ambulance is purchased?)

Reference no: EM1313296

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