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1. You are evaluating the purchase of a vehicle for your business. You've decided that the best choice is a car that will cost you $35,000, but you're uncertain how long you should plan on holding the car before you replace it. The table below lists the running costs and salvage value of the vehicle for each year.
1
2
3
4
5
Running Costs
-3000
-3500
-4000
-4500
-5000
Salvage Value
25000
20000
15000
10000
5000
What is the annual equivalent cost of replacing the vehicle every 3 years? Assume your cost of capital is 11.1%. Enter your answer to the nearest cent. Ignore taxes. (Your answer will be a cost, and therefore a negative number. Don't forget the minus sign.)
2. Consider the following list of projects:
Project
Investment
NPV
A
135,000
6,000
B
200,000
30,000
C
125,000
20,000
D
150,000
2,000
E
175,000
10,000
F
75,000
G
80,000
9,000
H
I
50,000
4,000
Assume that your capital is constrained, so that you only have $500,000 available to invest in projects. If you invest in the optimal combination of projects given your capital constraint, then the total NPV for all the projects you invest in will be closest to:
A.$80,000
B.$69,000
C.$58,000
D.$111,000
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