Alternative investment options
Not what you're looking for?
Nowhere Bus Lines (NBL) is considering two alternative buses to transport people from the commuter lot to the main campus. Bus S has a cost of $50,000 and will produce end-of-year net cash flows of $25,000 per year for 3 years. Bus L will cost $75,000 and will produce cash flows of $23,000 per year for the next 6 years. The company must provide bus service for 6 years, after which it plans to give up its franchise and to cease operating the route. Inflation is not expected to affect either costs or revenues during the next 6 years. If NBL's cost of capital is 15 percent, by what amount will the better project change the company's value?
a. $10,225.18
b. $11,736.26
c. $12,043.10
d. $13,424.66
Purchase this Solution
Solution Summary
This solution evaluates alternative investment options.
Solution Preview
Answer: C
The cash flow for Bus S will be as follows:
Year Cash flow
0 -50,000
1 25,000
2 25,000
3 -25,000 25,000 (from operations) - 50,000 (purchase of bus)
4 25,000
5 ...
Purchase this Solution
Free BrainMass Quizzes
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Production and cost theory
Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.
Social Media: Pinterest
This quiz introduces basic concepts of Pinterest social media
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Operations Management
This quiz tests a student's knowledge about Operations Management