Huron Charters can purchase a sailboat for $100,000 down and a $60,000 payment due in one year. The boat would generate additional annual operating profits of $24,000 for the first five years and $15,000 for the next five years. New sails costing $16,000 would be required after five years. After ten years the boat would be replaced; its resale value would be about $60,000. Should Huron purchase the sailboat if its cost of capital is 13% compounded annually?

Question

Quizplus · Accepted Answer

The Answer of Huron Charters can purchase a sailboat for $100,000 down and a $60,000 payment due in one year. The boat would generate additional annual operating profits of $24,000 for the first five years and $15,000 for the next five years. New sails costing $16,000 would be required after five years. After ten years the boat would be replaced; its resale value would be about $60,000. Should Huron purchase the sailboat if its cost of capital is 13% compounded annually?

Huron Charters Can Purchase a Sailboat for $100,000 Down and a $60,000