You own a small energy services company in rural West Texas are considering the purchase of...
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You own a small energy services company in rural West Texas are considering the purchase of an apartment "share" in Dallas for your monthly trips there for business. The company offers several membership plans, and you are trying to determine which plan is best for you. Whichever plan you choose, you anticipate staying in the apartment one night per month over a six-year period. The first night will be in two month's time (as you've already arranged lodging for next month). Your opportunity cost of funds is 9% per year, compounded monthly. You may assume that all other dimensions of the membership plans (quality, etc.) are held constant. For membership plans 2-4, the cost of the membership is payable up front, and you assume that renewal costs of each membership will remain constant (that is, a two-year membership in two years will continue to cost $6800, etc.) Membership plan 1: Purchase at the front desk when needed, at a cost of $300 per night. Membership plan 2: One-year membership, at a cost of $3500. Membership plan 3: Two-year membership, at a cost of $6800 For the annual plans there is promotional pricing such that you prefer to sign up today versus wait for the first stay in 2 months. It is currently Dec 31st. Each annual payment will be due Dec 31st to cover the following year. Your last stay will be in Dec in 6 years. a) Calculate the present value of the costs of staying one night per month for the next six years under each membership plan. Plan 1 (Please enter your answer as a positive number) (Please enter your answer as a positive number) (Please enter your answer as a positive number) Plan 2 Plan 3 b) Which membership plan should you choose? You own a small energy services company in rural West Texas are considering the purchase of an apartment "share" in Dallas for your monthly trips there for business. The company offers several membership plans, and you are trying to determine which plan is best for you. Whichever plan you choose, you anticipate staying in the apartment one night per month over a six-year period. The first night will be in two month's time (as you've already arranged lodging for next month). Your opportunity cost of funds is 9% per year, compounded monthly. You may assume that all other dimensions of the membership plans (quality, etc.) are held constant. For membership plans 2-4, the cost of the membership is payable up front, and you assume that renewal costs of each membership will remain constant (that is, a two-year membership in two years will continue to cost $6800, etc.) Membership plan 1: Purchase at the front desk when needed, at a cost of $300 per night. Membership plan 2: One-year membership, at a cost of $3500. Membership plan 3: Two-year membership, at a cost of $6800 For the annual plans there is promotional pricing such that you prefer to sign up today versus wait for the first stay in 2 months. It is currently Dec 31st. Each annual payment will be due Dec 31st to cover the following year. Your last stay will be in Dec in 6 years. a) Calculate the present value of the costs of staying one night per month for the next six years under each membership plan. Plan 1 (Please enter your answer as a positive number) (Please enter your answer as a positive number) (Please enter your answer as a positive number) Plan 2 Plan 3 b) Which membership plan should you choose?
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Related Book For
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts
Posted Date:
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