Question
Answer the two problems below (P1 and P2). Fivemarks each. Part marks will be allocated. Project 1 Calculations must be done in Excel The financial
Answer the two problems below (P1 and P2). Fivemarks each. Part marks will be allocated.
Project 1Calculations must be done in Excel
The financial advisor to PQR Company is evaluating whether to keep company cars for 3, 4, 5 or 6 years. The following information has been gathered:-
A car costs $80,000 and depreciation is 25% pa straight-line.
Cash expenses are $20,000 per year for the first 2 years, $30,000 in year 3, $40,000 in year 4, $50,000 in year 5 and $60,000 in year 6.
The salvage value is expected to be $30,000 after 3 years, $25,000 after 4 years, $20,000 after 5 years and $10,000 after 6 years.
The after tax required rate of return is 10% pa and the tax rate is 30%.
Required
Prepare an analysis to decide whether company cars should be kept for 3, 4, 5 or 6 years before being replaced with new ones.
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