Andr Lefevre runs a car valeting business and now wishes to expand his operations into car hire.

André Lefevre runs a car valeting business and now wishes to expand his operations into car hire. He is considering purchasing a small fleet of five identical cars. His accountant has provided him with the following information on each of the three models under consideration.

Additional information (1) Dealers are prepared to allow the following discounts on the purchase of a fleet of five cars:
%
Armada 5 Biarritz 10 Carioka 15 (2) Market research has indicated that likely demand for the hire of each fleet will yield the following total incomes per year:
£
Armada 30,000 Biarritz 35,000 Carioka 44,000 (3) It is intended to sell the cars immediately at the end of three years. Estimated selling prices for each car then being:
£
Armada 2,500 Biarritz 5,000 Carioka 7,000 (4) Insurance premiums are to be paid at the start of each year and are expected to rise over the next three years. Insurance for each fleet is expected to cost:

(5) Servicing and fuel charges are also expected to rise over the next three years. Servicing and fuel charges for each fleet are expected to cost:

(6) All cash flows except insurance arise at the end of the relevant year.
(7) The rate of interest applicable is 12% per annum.
(8) The following extract is from the present value table for £1:

Required:

(a) A financial statement using the net present value method for each fleet of cars being considered.
(Workings to the nearest pound.) (35 marks)

(b) A report for André Lefevre advising him which fleet of cars should be purchased. Indicate any reservations you may have regarding the net present value method of evaluating a project. (7 marks)

(c) A discussion of any other factors which may influence André in his decision. (

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Model Country of manufacture Cost per car () Armada Biarritz Carioka UK Spain Japan 7,000 12,000 16,000