A new moving van will increase a moving company's yearly revenue by $15,000.Its useful life is three years.If the interest rate is 10 percent (0.1)per year,which of the following is the highest price the firm would be willing to pay for the van? Assume that each year's revenue is received at the end of the year.(Answers are rounded to the nearest $100. )

Question

Quizplus · Accepted Answer

To determine the highest price the firm would be willing to pay for the van, we need to calculate the present value of the additional revenue the van will generate in the next three years.

Using the formula for present value of an annuity, we get:

PV = CF * [1 - (1 + r)^(-n)] / r

where PV is the present value, CF is the cash flow (additional revenue) each year, r is the interest rate, and n is the number of years (3 in this case).

Plugging in the values, we get:

PV = 15,000 * [1 - (1 + 0.1)^(-3)] / 0.1
PV = $37,266.78

Therefore, the highest price the firm would be willing to pay for the van is $37,300, which is closest to option C.

A New Moving Van Will Increase a Moving Company's Yearly