Imagine that you have gotten a job as a financial consultant and are considering
ID: 2765044 • Letter: I
Question
Imagine that you have gotten a job as a financial consultant and are considering purchasing a new power lawn mower. The new mower will save you 45 minutes of work per week. This “extra” time can be put toward your job where you make $25/ hour. If you work 50 weeks per year and the lawn mower cost $1,200 should you buy the mower based on the IRR approach? Assuming the mower will last 8 years and you could earn 9% on an alternative investment? Explain your response. What alternative you will choose? Show your calculator inputs for each decision.
Explanation / Answer
Answer to the Question:
Computation of NPV IF NEW MOWER IS PURCHASED
ALTERNATIVE OPTION EVALUATION
NPV if the new mower is purchased is more so new mower should be purchased.
Year No of Hours Saved (45*50)/60 Earning s per Hrs Total Earnings Discount factor @9% PVF 1 37.5 25 937.5 0.917 860.09 2 37.5 25 937.5 0.842 789.07 3 37.5 25 937.5 0.772 723.92 4 37.5 25 937.5 0.708 664.15 5 37.5 25 937.5 0.650 609.31 6 37.5 25 937.5 0.596 559.00 7 37.5 25 937.5 0.547 512.84 8 37.5 25 937.5 0.502 470.50 TOTAL INFLOW 5,188.89 Initial Investment (1,200.00) NPV 3,988.89