The proposal requires no immediate cash from the city. The buses will make a profit of $400,000 per year for the first 2 years of city operation. During year 3 the city will purchase a new fleet of buses and pay off the present owners at a cost of $1,900,000. The new buses will be operated for 4 years at a net profit of $300,000 per year. No salvage value is expected on either the present buses or the new buses. In other words, the costs of hauling them away will be exactly balanced by the revenue received from their sale. The life of the new buses is 4 years. At the end of year 7, therefore, the buses will be retired. At this time, the matter will be reinvestigated before any new investment is made. The opportunity cost of capital to the city is considered to be 10 percent. What is the true rate of return on this investment? Should the city accept the deal?
If anyone can give me any pointers or help at all... I'd be very grateful.
2007-03-25
05:19:25
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1 answers
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asked by
doublenickelsonthedime55
1