The Jones Family, Incorporated
THE JONES FAMILY, INCORPORATED
Principles of Corporate Finance
6th Edition
Richard A. Brealey and Stewart C. Myers
The accompanying table summarizes Johnny's NPV calculation. He assumed Marsha would take 25 100-mile trips per year, saving $200, plus $1.00 per mile, plus a $40 tip on every trip. Operating costs would be $.45 per mile. The net savings are $295 per trip and $7375 per year. These savings increase with inflation at an assumed rate of 4% per year.
It seems that Marsha's horse transporter was a good buy after all: NPV is positive (+ $14,325).
MINICASE SOLUTIONS
THE JONES FAMILY'S HORSE TRANSPORTER
|Year |0 |1 |2 |3 |4 |5 |6 |7 |8 |
|1. Investment (plus ending value in | | | | | | | | | |
|year 8) |-35,000 | | | | | | | |+15,000 |
|2. Insurancea |-1,200 |-1,200 |-1,200 |-1,200 |-1,200 |-1,200 |-1,200 |-1,200 | |
|3. Net savings vs. rented | | | | | | | | | |
|transporterb | |+7,375 |+7,375 |+7,375 |+7,375 |+7,375 |+7,375 |+7,375 |+7,375 |
| | | | | | | | | | |
|4. Cash flow |-36,200
Principles of Corporate Finance
6th Edition
Richard A. Brealey and Stewart C. Myers
The accompanying table summarizes Johnny's NPV calculation. He assumed Marsha would take 25 100-mile trips per year, saving $200, plus $1.00 per mile, plus a $40 tip on every trip. Operating costs would be $.45 per mile. The net savings are $295 per trip and $7375 per year. These savings increase with inflation at an assumed rate of 4% per year.
It seems that Marsha's horse transporter was a good buy after all: NPV is positive (+ $14,325).
MINICASE SOLUTIONS
THE JONES FAMILY'S HORSE TRANSPORTER
|Year |0 |1 |2 |3 |4 |5 |6 |7 |8 |
|1. Investment (plus ending value in | | | | | | | | | |
|year 8) |-35,000 | | | | | | | |+15,000 |
|2. Insurancea |-1,200 |-1,200 |-1,200 |-1,200 |-1,200 |-1,200 |-1,200 |-1,200 | |
|3. Net savings vs. rented | | | | | | | | | |
|transporterb | |+7,375 |+7,375 |+7,375 |+7,375 |+7,375 |+7,375 |+7,375 |+7,375 |
| | | | | | | | | | |
|4. Cash flow |-36,200