Consider the example of a present-value calculation in equation

(14.19) in which a car that costs the rental car company $15,000 is expected to earn $3,000 per year for two years and to be sold at the end of two years for

$12,000. When the relevant market interest rate is 5 percent, its present value is $16,463. Consider this to be the base case. Consider the following variations from the base case – compute the present value and state whether the rental car company should invest in the car.

(a) All else as in the base case except that the car is expected to earn only

$2,000 per year;

(b) All else as in the base case except that the car is expected to be sold for

$11,000 at the end of two years;

(c) All else as in the base case, except that the initial purchase price of the car is $16,000.