Calculations must be done by Excel

Project 1

As the financial advisor to Upmarket Car Rentals, you are evaluating the following types of cars to add to the fleet: -

Speedster: - A sporty convertible with a cost of $150,000 and a useful life of 6 years. It will produce rental income of $90,000 per year and operating costs of $15,000 per year. Cost of maintenance is expected to be $4,000 p.a. for each of the first three years, $4,500 for the fourth year, $5,000 for year five and $5,500 for year six. A salvage value of $30,000 is expected after 6 years.

Cruncher: - A rugged off-road vehicle costing $200,000 but with an expected useful life of only 3 years, due to the harsh conditions. It will produce rental income of $150,000 per year and operating costs of $20,000 per year. Cost of maintenance is expected to be $5,000 for the first year, $5,500 for year two and $6,000 for year three. A salvage value of $50,000 is expected after 3 years.

Assuming a cost of capital of 10% p.a. and no tax or inflation.

Required

Which should be selected if the two options are mutually exclusive and are one off? Why?

Which should be selected if the two options are mutually exclusive and can be repeated into the foreseeable future? Why?