Joe Has Decided to Purchase His Textbooks for the Semester

question 166

Multiple Choice

Joe has decided to purchase his textbooks for the semester.His options are to purchase the books via the Internet with next day delivery to his home at a cost of $250,or to drive to campus tomorrow to buy the books at the university bookstore at a cost of $245.Last week he drove to campus to buy a concert ticket because they offered 20 percent off the regular price of $20.Which of the following statements is true?

• A) It would not be rational for Joe to drive to campus to purchase the books because the $5 saving is only two percent of the cost of the books,and that is much less than the 20 percent he saved on the concert ticket.
• B) It would be rational for Joe to drive to campus because it costs less to buy the books there than via the Internet.
• C) It would be rational for Joe to drive to campus because the $5 saving is more than he saved by driving there to buy the concert ticket.
• D) It would not be rational for Joe to drive to campus to purchase the books because the cost of gas and his time must certainly be more than the $5 he would save.
• E) There is insufficient information to determine whether or not it would be rational for Joe to purchase the books via the Internet or on campus.

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Definitions:

Discount Rate

The interest rate used to discount future cash flows to their present value, reflecting the time value of money and risk.

Initial Investment

The initial outlay of money required to start a project, purchase an asset, or invest in a business venture.

Useful Life

The estimated period over which an asset is expected to be usable for the purpose it was acquired.

Salvage Value

The anticipated remaining value of an asset at the conclusion of its operational life.