Q1 A is planning to start B2B luxury cab service in Mumbai with a fleet of 10 luxury cars of multiple brands. The average price of each car is Rs 25 lakh and Arav expects the cars to run for a total of 7 years. A has decided to fund 70% of his business with long term debt (10 years) at 12.5% interest, that would be paid off in equal instalments over the tenure of 7 years. The further assumptions about his operations are shared below:

1. The firm contracts with the organisations for 120 kms per day at a price of Rs 45/KM. The firm predicts a vehicle utilisation of 75%, which means that on an average 7.5 vehicles will be under contract.

2. The firm expects to increase the price per KM at 5% per annum

3. The petrol expenses are expected to be Rs 15/KM, which are further expected to increase at 12% per annum.

4. The firm incurs an annual charge of Rs 8 lakh for maintenance

5. The organisations pay the firm after 45 days and the firm pays the - drivers salary + petrol expenses monthly (30 days creditors period). The drivers current salary is Rs 5 lakh and is expected to grow at 8% per annum.

6. The firm does not charge any depreciation.

Calculate

1. Break-even KM/Day to achieve target EBIT of INR 5 Lakh in first year, INR 7 Lakh in second year and INR 8 Lakh in remaining year.
2. If price per km changes from 45 to 50, How many KM/Day is needed to be covered in order to achieve EBIT 5 Lakh in second year?
3. What should be change in price if KM/Day decreases from 120 KM/day to 115 KM/Day in order to achieve EBIT 7 Lakh in third year?