Good Buy Versus Buying Npv 3 Part 1 Answer 2 Repl

1. Reading about Net Present Value (NPV) for this module, you probably thought of it as a technique used only by corporations. But the technique may also apply to your own purchases.

You may have heard a salesperson tell you, “This product pays for itself!” While this is probably rare for most products, sometimes there are future savings from certain products that will offset some of the costs. For example, if you buy a newer, more reliable, and more fuel-efficient car, it may save you on repair bills and gas prices compared with your old car. If you are a coffee connoisseur, buying a $100 espresso machine might save you money compared with constantly buying $4 drinks at your local Starbucks.

Think of a purchase you are planning to make or have recently made. How much did it cost? How much per year do you think you will save from this purchase, and for how many years will you get these savings? Estimate the present value of the savings, and subtract the cost of the product. Note that it is rare that any purchase will “pay for itself” (e.g., have a positive NPV). But are the savings enough that the product becomes a lot “cheaper” and more worthwhile for you to buy?

2. Recently my doctor told me that my cholesterol was high and I need to change my eating habits. I switched to heathier foods in the vast majority of restaurants I visit. One food that really helps with cholesterol is oatmeal. It is supposed to have a relatively low cost and it’s a natural way to reduce the bad cholesterol in my system.

Here is the bad part. One of the restaurants I started going to about 3 to five times a week is Starbucks. A cup of “Perfect Oatmeal” there costs $3.45. The newer version is $2.75. I am going to confirm those prices tomorrow morning because prices vary. My wife recommended that I start buying my oatmeal at Wal-Mart a few weeks back. I promised that I would try some Quaker Oats that I used to eat when I was a kid. Let’s just say I was blown away when I saw that a Flavor Varity Pack with 20 Quaker Oatmeal packets from Wal-Mart (a.k.a. Wally-World) costs $4.88. I have to pay an additional fee for the blueberries that I eat at both locations. For the sake of brevity, we’ll assume that both types are equal in nutritional value. Some people say that Starbucks Oatmeal is healthier but the packets look the same to me minus the labels. Starbucks gives you a huge sugar packet so you can apply calories at your own discretion.

The bottom line is that I can travel to Starbucks 20 times a month and pay $55 for the cheaper version of Starbucks Classic oatmeal at a cost of $2.75. The alternative is to travel to Wal-Mart once a month and pay $4.88 for a variety pack. The stores are less than a quarter of a mile apart so no major travel distance. I am going to throw in the cost of the Blueberries at Wal-Mart just to even the cost up a little for the Quaker Oats. Conducting an analysis doesn’t even seem necessary at the point, so I will attempt to apply the savings to other things that I could be investing the money into with the savings.

Does anyone remember those commercials that calculated how much money smokers would save if they stopped smoking and invested the money instead? My dad quit about 30 years ago after seeing that he could pay for a house. (Amazing)

I am going to see if I can dig up my thought process for buying my last car too. I bought a Tesla because I my first internship after retiring from the Army required me to drive about 10 times more than I did when I worked at Fort Bragg NC. I had about an 80 mile one way trip to the work. The model X meets federal requirements for a large tax deduction. The car also gets about 92MPGe. My old Ford Explorer got about 18 mpg when it was new. When I donated it, it was getting about 14 mpg on average. The free highway miles on the Tesla (for charging), and flat rate maintenance costs, along with some other cost savings lead me to believe it was a good buy versus buying another gasoline crossover. I also feel like it sync with me building solar farms some day. I figured that the cost of gas and electricity would go up over the years, but my highway travel in the Tesla would remain at 0$ for supercharging. There are a few assumption. Frist, that Tesla’s free lifetime supercharging feature for early adopters does not get revoked for some reason. Second, I don’t crash the car. Finally, the cost of both types of fuel maintain their current level of inflationary impacts on costs. We’ll see if I was right shortly. I know I crunched some numbers, but nothing I did was as accurate as what we are learning about.

I know two things right now. I tried to work out the numbers for an very expensive SUV without a lot of the unnecessary features, but I didn’t know what I know now. 😉

Secondly, some features aren’t comparable for internal combustion engine cars. A good is example is the time saved never going to a gas station. Everyone morning I leave with a full charge. My light bill went up about $20-40 a month. One fill up in my Ford covers that cost. Unfortunately, I didn’t do a good job of including inputting the correct insurance cost etc. I will keep it simple.

3. The most recent purchase that I made was a new washing machine for $400.00. I already had the dryer, but I still had to take my clothes to the laundromat to wash them, so I dried them there as well. So, the routine would be to get all of the laundry prepared Friday night, loaded in the car and ready to go. And also make sure I either had cash or quarters! Forgot that a couple of times. I learned very quickly that you have to be there when the doors opened at 5 a.m. or you would be there all day trying to get all of your laundry done. Each week I would do 2 loads of colors, 2 of darks, and 1 of whites.

It cost $2.00 for the darks and colors per load in the wash, and $2.25 for the whites. The dryers were a quarter for 4 minutes. Crazy, I know, however, I tried the whole, bring the wet clothes home and run them through my dryer, but that cost me time out of work because I injured my back! So, each load cost 8 quarters or $2.00, for 30 minutes of dry time.

Based on the above numbers it was costing me $20.25 per week, calculating yearly would be multiplied by 52 weeks, so doing my laundry at the laundromat would cost me $1,053.00. This is where the washer kind of already pays for itself. If we look at the energy star savings of $20.00 per year and subtract that out of the $1,053.00 per year, our savings would be $1.033.00 per year. Then add the 2% interest rate that I could get on my $400.00 if I put it into a savings account, I could work out the entire NPV, over what I would hope the life of the washing machine would be, 10 years, my savings would be $8,879.01 (Kenton, 2018). Although this was a simple purchase, it does make you feel good when you can see the actual savings that you are getting.