Project 1 Calculations must be done in Excel

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

1. 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%.

2. 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.

Required

1. The NPVs of the two cars.
2. An analysis of the two cars assuming they are mutually exclusive and can be repeated indefinitely.