St. Lawrence Bus Lines is offered a contract for busing schoolchildren that will produce an annual profit of $70,000 for seven years. To fulfill the contract, St. Lawrence would have to buy three buses at a total cost of $333,000. At the end of the contract the resale value of the buses is estimated to be $80,000.
Should St. Lawrence Bus Lines sign the contract if its cost of capital is:
a) 12%?
b) 14%?
c) 16%?

Question

St. Lawrence Bus Lines is offered a contract for busing schoolchildren that will produce an annual profit of $70,000 for seven years. To fulfill the contract, St. Lawrence would have to buy three buses at a total cost of $333,000. At the end of the contract the resale value of the buses is estimated to be $80,000.
Should St. Lawrence Bus Lines sign the contract if its cost of capital is: 
a) 12%?
b) 14%?
c) 16%?

Quizplus · Accepted Answer

The Answer of St. Lawrence Bus Lines is offered a contract for busing schoolchildren that will produce an annual profit of $70,000 for seven years. To fulfill the contract, St. Lawrence would have to buy three buses at a total cost of $333,000. At the end of the contract the resale value of the buses is estimated to be $80,000.
Should St. Lawrence Bus Lines sign the contract if its cost of capital is: 
a) 12%?
b) 14%?
c) 16%?

St Lawrence Bus Lines Is Offered a Contract for Busing