Question: Gateway Tours is choosing between two bus models. One is more expensive to purchase and maintain but lasts much longer than the other. Gateway's

Gateway Tours is choosing between two bus models. One is more expensive to purchase and maintain but lasts much longer than the other. Gateway's discount rate is 11.3%. The company plans to continue with one of the two models for the foreseeable future. Based on the costs of each shown here: which should it choose? (Note: dollar amounts are in thousands.) A. Gateway Tours should choose Old Reliable because it lasts longer. B. Gateway Tours should choose Old Reliable because the equivalent annual annuity of its costs is smaller. C. Gateway Tours should choose Short and Sweet because the equivalent annual annuity of its costs is smaller. D. Gateway Tours should choose Short and Sweet because the NPV of its costs is smaller. (Click on the following icon in order to copy its contents into a spreadsheet.) Model Year 0 Old Reliable Short and Sweet - $199 -$102 Year 1 - $3.9 Year 2 Year 3 - $3.9 - $3.9 Year 4 - $3.9 Year 5 - $3.9 -$2.2 -$2.2 -$2.2 -$2.2 Year 6 - $3.9 Year 7 - $3.9
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
