Question #144423

Question 4

In high school Jeff often made money in the summer by mowing lawns in the neighborhood. He just finished his freshman year of college and, after taking a Business 101 class, he has some ideas about how to scale up his lawn mowing operation. Previously, he had used his father's push mower, but he is thinking about getting a riding mower that will save time and allow him to do more lawns. He found a used, zero turn, riding mower on Craigslist for $1,000. He will also need a trailer to pull the mower behind his pickup; that will cost him an additional $600. With the new mower he can take on an additional 20 lawns per week at an average cash inflow of $22 per lawn he will receive at the end of each week. He has 12 weeks of summer in which to mow lawns. (For convenience, assume that the mower and trailer will have no value after Jeff is done with his work this summer.) The discount rate for Jeff is 11% (note that this is an annual rate). What is the Net Present Value of the mower/trailer project?

In high school Jeff often made money in the summer by mowing lawns in the neighborhood. He just finished his freshman year of college and, after taking a Business 101 class, he has some ideas about how to scale up his lawn mowing operation. Previously, he had used his father's push mower, but he is thinking about getting a riding mower that will save time and allow him to do more lawns. He found a used, zero turn, riding mower on Craigslist for $1,000. He will also need a trailer to pull the mower behind his pickup; that will cost him an additional $600. With the new mower he can take on an additional 20 lawns per week at an average cash inflow of $22 per lawn he will receive at the end of each week. He has 12 weeks of summer in which to mow lawns. (For convenience, assume that the mower and trailer will have no value after Jeff is done with his work this summer.) The discount rate for Jeff is 11% (note that this is an annual rate). What is the Net Present Value of the mower/trailer project?

Expert's answer

To obtain the Net Present Value of the trailer/mower project, we will first determine the weekly Interest Rate as shown below;

"=\\frac{11\\%}{52}\\\\=0.2115\\%"

Then the NPV can be obtained using excel as in the diagram.

Workings are shown below too.

Therefore the Net present value for this project will be $3,608.11

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