Question

Gateway Tours is choosing between two bus models One is expensive to purchase and main but as much longer than the other Gateway's discount rate is 10.7% The company plans to continue with one of the two models for the foresonable future based on the cost of each shown below, which should it choose? Note dollar amounts are in thousands) Year 3 Year 6 Year 7 Model O Riable Year o 5199 - 5101 Yeart -533 - 522 Year 2 538 Short and S Based on the costs of each model, which should choose? (Select the best choice O A Gateway Tours should choose Short and Sweet because the equivalent annual OB Gateway Tours should choose Old Reliable because the equivalent an OC Gateway Tours should choose Old Reliable because it lasts longer OD Gateway Tours should choose Short and Sweet because the

Answer 1

Using excel formula to calculate

		A	B	C	D	E	F	G	H	I
1	Model	Year 0	Year 1	Year 2	Year 3	Year 4	Year 5	Year 6	Year 7	NPV	Excel formula	EAC	Excel formula
2	Old Reliable	-199	-3.8	-3.6	-3.8	-3.8	-3.8	-3.8	-3.8	($216.92)	NPV(10.7%,A2:H2)	($45.59)	PMT(10.7%,7,-I2)
3	Short and Sweet	-101	-2.2	-2.2	-2.2	-2.2	0	0	0	($107.87)	NPV(10.7%,A3:H3)	($34.55)	PMT(10.7%,4,-I3)

Option a is correct option