Question

The University could continue to use the present bus for the next seven years. Whether the present bus is used or a new bus is purchased, the bus would be traded in for another bus at the end of seven years. The University uses a discount rate of 12% and the total cost approach to net present value analysis. If the new bus is purchased, the present value of the annual cash operating costs associated with this alternative is closest to:

Answer 1

If the present bus is repaired, the present value of the annual cash operating costs associated with this alternative is calculated as follows;