Question on finance problem?
Tom wants to buy a boat but is short of cash. Two alternatives are available: Tom can accept $2,000 per year from his brother for partial ownership in the boat, or hecan earn money by renting the boat to others. Rental income would be $2,500 per year. Under either alternative, the boat will last eight years. If Tom rents the boat out, he will have to pay $3,000 to overhaul the engine at the end of the fourth year. Which alternative should Tom select, assuming that the cost of capital is 12% and that only quantitative considerations are involved? I figured out that Option I = $13,600 and Option II = $14,600. Can someone help get me started? Thanks!
Public Comments
- My calculations match yours
