Caramanzana, Camille C.

BSM41

Assignment #1- Finals

1. Two main alternatives

Keep using fullsize bus
Purchase new minibus
2. The purchase new minibus has two options
Sell th five fullsize bus
Keep the five fullsize bus
3. NPV analysis for the two options
NPV for Sell the five fullsize bus
0
Selling price
$
75,000.00
Charter cost
$
- $
Total
$
75,000.00 $
Discount factor
1.00
NPV
$
75,000.00 $

(30,000.00)
(30,000.00) $
0.89
(26,785.71) $

NPV for Keep the five fullsize bus

0
Cost
$
Total
$
- $
Discount factor
1.00
NPV
$
- $

1
(5,000.00)
(5,000.00) $
0.89
(4,464.29) $

2
### $
(30,000.00) $
0.80
(23,915.82) $

2
### $
(5,000.00) $
0.80
(3,985.97) $

(30,000.00) $
(30,000.00) $
0.71
(21,353.41) $

(30,000.00) $
(30,000.00) $
0.64
(19,065.54) $

(30,000.00)
(30,000.00)
0.57
(17,022.81)

3
(5,000.00) $
(5,000.00) $
0.71
(3,558.90) $

4
(5,000.00) $
(5,000.00) $
0.64
(3,177.59) $

5
(5,000.00)
(5,000.00)
0.57
(2,837.13)

Based on the above computation we can say that keeping the fullsize bus is better due to lower NPV cost of $18,023.88 compared to NPV cost ($33,143.29) of selling
the five fullsize bus.

5. IRR of minibus acquisition

Acquisition cost
Incrimental Compensation
Incrimental operation and maintenance
Initial setup acquired
Selling cost of five fullsize bus
Total

$
$
$

0
(216,000.00)

$
$

(54,000.00) $
90,000.00 $

(54,000.00) $
90,000.00 $

(54,000.00)
90,000.00

(15,250.00)
75,000.00
(156,250.00) $

36,000.00 $

36,000.00 $

36,000.00

IRR= 4.92%. The answer obatained using financial calculator by imputing the computed data above.
6. Irrelevant decision making
Base on the computed data, we can conclude that the acquisition price of fullsize bus is irrelevant for decision making due of having net present value. Depreciation is also
irrelevant in this decision making because it is cash problem.

10/6/2015
Sir Sancho Castro

4. NPV Analysis for two alternatives

NPV for Continuos use of fullsize bus
0
Driver compensation cost
Operation and maintenance cost
Total
Discount factor
NPV

$
$

$
$
$

1.00
- $

1
(90,000.00)
(250,000.00)
(340,000.00)
0.89
(303,571.43)

$
$
$
$

2
(90,000.00)
(250,000.00)
(340,000.00)
0.80
(271,045.92)

NPV for Purchase Minibus

Total

(33,143.29)

Total

(18,023.88)

o NPV cost ($33,143.29) of selling

Acquisition cost
Compensation cost
Operation and maintenance cost
Initial setup acquired
Selling cost of five fullsize bus
Total
Discount Factor
NPV

$
$
$
$

0
(216,000.00)

$
$

(144,000.00) $
(160,000.00) $

(144,000.00)
(160,000.00)

(15,250.00)
75,000.00
(156,250.00) $
1.00
(156,250.00) $

(304,000.00) $
0.89
(271,428.57) $

(304,000.00)
0.80
(242,346.94)

Based on the above computation we can say that keeping the fullsize bus is better due to lower NPV cost of $1,255
($1,252,101.97) of purchasing new minibus.

$
$

(54,000.00) $
90,000.00 $

(54,000.00)
90,000.00

36,000.00 $

36,000.00

g net present value. Depreciation is also

$
$
$
$

3
(90,000.00)
(250,000.00)
(340,000.00)
0.71
(242,005.28)

$
$
$
$

4
(90,000.00)
(250,000.00)
(340,000.00)
0.64
(216,076.15)

$
$
$
$

5
(90,000.00)
(250,000.00)
(340,000.00)
0.57
(192,925.13) $

$
$

(144,000.00) $
(160,000.00) $

(144,000.00) $
(160,000.00) $

(144,000.00)
(160,000.00)

(304,000.00) $
0.71
(216,381.20) $

(304,000.00) $
0.64
(193,197.50) $

(304,000.00)
0.57
(172,497.76) $

lower NPV cost of $1,255,623.91 compared to NPV cost

Total

(1,225,623.91)

Total

(1,252,101.97)