Beginning Finance MC Question: plz make table & show ur work!! thx Question 2 (1

Question

Beginning Finance MC Question:

plz make table & show ur work!! thx

Question 2 (10 points) The city of Middleville is considering offering public bus service. Setting up the service will cost the city $11M (where M stands for million). The useful life of the buses is 27 years. Annual maintenance of the buses would cost $86,000 per year and they would need a major overhaul in year 21 that will cost a total of $560,000. This overhaul is in addition to the annual maintenance Annual labor and administrative costs will begin at $120,000 in year 1 and grow at 2.5% per year thereafter. The buses will generate a revenue of $170,000 in year 1 and it will grow at 45% per year thereafter. Reduced parking requirements and other benefits generated by the project will save the city $270,000 per year. The salvage value (price the city can get in the future after maintenance) of the used buses in year 27 is expected to be $290,000 What is the NPV of the bus proposal? The city does not pay taxes and the discount rate is 5.9% Assume that all cash flows except initial investments happen at the end of the year and you are strongly encouraged to use a spreadsheet to solve this problem. $3,015,205.03 $2,785,491.52 $2,896,759 04 $2,847,180.43

Explanation / Answer

So total NPV of education =NPV of Earning after education -NPV of Opportunity cost - NPV of education expenses - NPV of living expenses

'=591985-405504-28822.06-49873

PV calculated by formula PV= Cash flow/ (1+Discount)^N (N is number of years from present)

Tution Total NPV 49873 Years lapsed from 19th birthday FV NPV 0 13000 13000 1 13650 12639 2 14333 12288 3 15049 11946

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