Problem:
Josh decides to start a new taxi service in his spare time that he plans to market towards students (that means cheap) that don't want to park on campus, underclassmen without cars, and those incapable of driving after visiting some of the downtown establishments. The first thing Josh needs to do is buy a car. After visiting Mr. Charming Salesman at Sundance Used Cars, he has narrowed his choices to 3 possibilities. The three cars Josh can afford and their yearly net revenues (fares-gas & maintenance) are listed below. Remember, each car must be repaired when it finally dies if you are to remain in business.
Year Neon Geo Metro PT Cruiser
0 -$700 -$1,600 -$3500
1 600 1000 1200
2 600 1000 1200
3 600 1200
4 1200
Required:
Question: Assuming an appropriate discount rate of 4.5% which one would you buy? Why?
Note: Explain all calculation and formulas.