quiz3_f10_soln

# quiz3_f10_soln - If a question asks why/explain you should...

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N a m e : (also write your name on the back) Finance 325: Quiz #3 – Solutions November 9, 2010 1. You work for the Whiman County Department of Transportation, and you are looking to buy a bus for the Pullman Transit Authority. You have two different buses to choose from. The first bus (Bus A) costs \$350,000, and will require \$7,500 per year in maintenance costs over the life of the bus. This bus will last for 10 years. The second bus (Bus B) only costs \$220,000 and requires \$10,000 per year in maintenance costs over the life of the bus, and it will last for 7 years. Assume that the revenues from each bus will be the same. At the end of the service life of the bus, you will purchase the same bus again, and continue this cycle indefinitely. The discount rate used to evaluate bus purchases is 14%. Which bus should Pullman Transit buy? (4 pts) This is an EAA question. First we solve for the NPV of each bus, and then compute the EAA. 0

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## This note was uploaded on 08/05/2011 for the course COMM 298 taught by Professor Freedman during the Winter '09 term at UBC.

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quiz3_f10_soln - If a question asks why/explain you should...

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