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  3. You are deciding whether to purchase a used car. The price of the car is ＄1,400

You are deciding whether to purchase a used car. The price of the car is ＄1,400

游客2025-06-21  14
问题  You are deciding whether to purchase a used car. The price of the car is ＄1,400 and you expect the car to last for four years. You have determined that the value of the flow of services you will receive from the car in each of the four years is ＄500. The interest rate is 20 percent. (Assuming that all figures are real terms.)
(a)Without discounting future cash flows and benefit streams, is the benefit of buying this car greater than the cost?
(b)When costs and benefits are appropriately valued, what is the net present value of this investment? Should you buy the car?
选项
答案 (a)The stream of benefits for the four years is ＄500+＄500+＄500+＄500=＄2,000.
The stream of costs over the four years is ＄1,400+＄100+＄100+＄100=＄1,700.
Therefore, the benefits outweigh the costs.
(b)The PV of the benefit stream is ＄500/(1+20%)+＄500/(1+20%)2+＄500/(1+20%)3+＄500/(1+ 20%)4=416.67+347.22+289.35+241.13=＄1,294.37.
The cost of the car is ＄1,400. The net present value is negative (1,294.37-1,400=-＄105.63), and therefore you should not buy the car.
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