A farmer must decide whether or not to purchase a new tractor. The tractor will
ID: 2506600 • Letter: A
Question
A farmer must decide whether or not to purchase a new tractor. The tractor will reduce costs by $2,000 in the first year, $2,500 in the second and $3,000 in the third and final year of usefulness. The tractor costs $9,000 today, while the above cost savings will be realized at the end of each year. If the interest rate is seven percent, what is the net present value of purchasing the tractor
- $2498.35
- $1500.00
$6501.35
$ 7500.00
$9000.00
A.
- $2498.35
.
- $1500.00
C.$6501.35
D.$ 7500.00
E.$9000.00
Explanation / Answer
PV = -9000 + 2000/1.07 + 2500/1.07^2 + 3000/1.07^3 = - 2498.35 (ans)