Negotiated price of the new camper $70,000 Sales tax rate (applicable to purchas
ID: 2624458 • Letter: N
Question
Negotiated price of the new camper
$70,000
Sales tax rate (applicable to purchase price)
6.5%
Camper trade-in
0
Estimated terminal value of the camper in four years
$40,000
Estimated monthly repair and maintenance
$800
Estimated monthly campsite fee
$500
The owner's disposable annual income is $24,000.
1. What is the initial investment?
2. What is the Operating Cash Flow?
3. What is the terminal cash flow?
4. What is the annual cash flow that will occur for each year the camper is owned? This includes the initial expenditure made at t = 0, the cash outflow that occurs for expenses in Years 1 through 4; and the final terminal cash inflow received when the boat is sold on December 31, Year 4.
5. Based on the owner's disposable annual income, what advice would you give them regarding the proposed camper purchase?
Negotiated price of the new camper
$70,000
Sales tax rate (applicable to purchase price)
6.5%
Camper trade-in
0
Estimated terminal value of the camper in four years
$40,000
Estimated monthly repair and maintenance
$800
Estimated monthly campsite fee
$500
Explanation / Answer
1]The initial investment = Negotiated price of the new camper + Sales Tax
= 70000 + (70000*6.5%)
= 70000 + 4550
= $74550
..
2]
The Operating Cash Flow = Annual income
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