Marsha Jones, whom you met in the Chapter Mini-case, has

Marsha Jones, whom you met in the Chapter Mini-case, has bought a used Mercedes horse transporter for her Connecticut estate. It cost $35,000. The object is to save on horse transporter rentals. Marsha had been renting a transporter every other week for $200 per day plus $1.00 per mile. Most of the trips are 40 or 50 miles one-way. Marsha usually gives the driver a $40 tip. With the new transporter she will only have to pay for diesel fuel and maintenance, at about $.45 per mile. Insurance costs for Marsha’s transporter are $1,200 per year. The transporter will probably be worth $15,000 (in real terms) after eight years, when Marsha’s horse Nike will be ready to retire. Is the transporter a positive-NPV investment? Assume a nominal discount rate of 9 percent and a 3 percent forecasted inflation rate. Marsha’s transporter is a personal outlay, not a business or financial investment, so taxes can be ignored.

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...


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