Giving back the drivers After analysing the performance of Quber, the CEO acknowledges that the company is heading in the right direction. The next step Quber would like to extend the application to improve its usability for users and also include a stronger and transparent commission system for the drivers. The drivers are currently collecting a small tip from some passengers and this is expected to amount to $100,000 collectively at the end of 12 months. The drivers have promised to hand this amount to Quber as an initiative to not only help with bookkeeping, the development of the app as a small business owner, but to overall increase the number of rides undertaken and their percentage cut of the shared revenue. The CEO believes this could be a point of differentiation between Quber and its competitors and would like to support the initiative. However, as part of the additional feature within the application, Quber would need an initial outlay of an $800,000 fee for overhaul of its current booking application. Based on this positive update, Quber expects the average amount of total combined revenue (Quber and all their drivers) from rides to be $335,000 per month. Quber will however have to pay a small dedicated maintenance team of $17,000 per month in this trial phase of 12 months. Quber set their cost of capital at 5% per annum compounded monthly. They are currently giving the drivers 70% of the total combined revenue cut but there is a feeling this figure might be low. Its time to show your Quants knowledge and expertise with Excel to determine the drivers cut.

(a) (4 marks) Calculate the present value of the $100,000 from drivers promised to Quber at the end of 12 months. Do not use EXCEL for this calculation.

(b) (6 marks) By using the current 70% sharing scheme with the drivers, calculate the companys cash inflow and the Net Present Value of this proposed enhancement of Qubers ride booking application. Use EXCEL to calculate the net present value of the current situation.