Question
As the financial advisor to Upmarket Car Rentals you are evaluating the following types of cars to add to the fleet: Required (1)The NPV's of
As the financial advisor to Upmarket Car Rentals you are evaluating the following types of cars to add to the fleet:
Required
(1)The NPV's of the two cars.
(2)An analysis of the two cars assuming they are mutually exclusive and can be repeated indefinitely.
Speedster: - A sporty convertible with a cost of $120,000 and a useful life of 4 years. It will produce rental income of $80,000 per year and operating costs of $15,000 per year. A major service is required after 2 years costing $20,000. A salvage value of $30,000 is expected after 4 years. The required return is 8%.
Cruncher: - A rugged off-road vehicle costing $180,000 but with an expected useful life of only 2 years, due to the harsh conditions. It will produce rental income of $150,000 per year and operating costs of $20,000 per year. A major service is required after 1 years costing $30,000. A salvage value of $45,000 is expected after 2 years. The required rate of return is 10%.
Income tax can be ignored.
Calculations done in Excel preferrable
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