As a 19th Century Economist, You Are Faced with the Following

question 8

Multiple Choice

As a 19th century economist, you are faced with the following problem. The world's shipping fleet consists of steamships and sailing ships. Each can be used to carry cargo or passengers. The ships have similar sailing capacities but differ in their annual operating costs as follows: Assume: (i) Fares are competitively determined, (ii) demand is not expected to change, (
III)
Each vessel has a life of 15 years, (
IV) current salvage value of either ship (sailing or steam) is
$114,091, and (v) Cost of capital is 10%, (
VI) no taxes. What is the annual revenue from a cargo ship? (Assume that salvage values are independent of use and there are no taxes.) If the cost of carrying cargo by sailing ship were $70,000 per year, what would be the present value of a steamship?

• A) $114,091
• B) $152,814
• C) $215,000
• D) None of the above

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