Question
Zoso is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its
Zoso is a rental car company that is trying to determine whether to add 25 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight-line method. The new cars are expected to generate $175,000 per year in earnings before taxes and depreciation for five years. The company is entirely financed by equity and has a 35 percent tax rate. The required return on the companys unlevered equity is 13 percent, and the new fleet will not change the risk of the company. The risk-free rate is 8 percent.
a. | What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))
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