Is the transporter a positive-NPV investment

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Reference no: EM131020258

Ted has bought a horse transporter for hi horse ranch for $35,000. The reason is he used to rent transporters to take his horses to competitions and wants to save money on those rental costs. Ted has been renting a transporter every other week (26 times per year) for $200 per day plus $1.00 per mile. The entire trip takes place in one day; he picked the transporter up on Saturday morning and dropped it off Saturday night. His trips are 100 miles in total (round-trip) and he tipped the driver $40 at the end of the day. With the new transporter he will only have to pay for gas and maintenance, at $0.45 per mile. Insurance for the transporter is $1,200 per year (which he did not pay when he rented the transporter.). The transporter will be worth $20,000 (in real terms) after eight years, when Ted’s horse will have to retire. Assume a nominal discount rate of 9% and a 3% forecasted inflation rate. Is the transporter a positive-NPV investment?

Reference no: EM131020258

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