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You own a race car rental company where customers can come in, take a safety course and drive the race car around a track. Your
You own a race car rental company where customers can come in, take a safety course and drive the race car around a track. Your customers drive a total of about 800 hours per year and for this service, they pay $425 per hour. Your operating costs are about $250 per hour driven and insurance is $20,000 per year. a) (15)You are considering buying a new car but unfortunately, you don't keep very good records. Perform a one way sensitivity analysis on profit assuming operating costs could really be as low as $200/hr or as high as $335/hr. b) (25)Perform a two way sensitivity analysis on profit assuming: operating costs are as in part a and you will probably keep the hourly fee at $425 but may run a promotion for as low as $350 or increase it up to $475. Show visually the effect on profit. What is your recommendation for the sales promotion? You have the option of purchasing a new car for about $90,000 but you only have $50,000 to put down on it. You estimate you will get a loan rate of about 8%, compounded yearly (APR) for the balance and will take a 10 year loan with monthly payments If you purchase it you estimate that operating costs will increase about $30/hr. c) (20) What is the average net annual profit? (Use all assumptions from a and b above) d) (30) Perform a two-way sensitivity analysis assuming: interest rate is normally distributed with a mean of 8% and a standard deviation of 0.75% hourly operations cost is triangularly distributed with a most likely value of $280, a minimum of $275 and a maximum of $345 hourly fee varies as in part b. Show results graphically and provide a written short analysis. e) (10) What is your recommendation as to whether or not the car should be purchased and why? Is there a point at which the car should definitely not be considered
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