Question
Benton is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its
Benton is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over six years using the straight-line method. The new cars are expected to generate $195,000 per year in earnings before taxes and depreciation for six years. The company is entirely financed by equity and has a 23 percent tax rate. The required return on the companys unlevered equity is 12 percent and the new fleet will not change the risk of the company. The risk-free rate is 5 percent.
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