--%>
Assignment Help - homework help

Problem on car rental plans

Ape Car Rental plans to begin its business by buying 10 cars at the average price of $18,000 each, depreciating them entirely over 5 years utilizing the straight-line method. It will rent space in a parking lot for $300 a month, paying the rent in advance every month. Ape expects that it will rent 5 cars on an average day, charging $40 per day per car. The maintenance cost for each car is $60 a month. After 5 years, Ape will sell the cars at 40% of the original value. Ape receives all income and pays all the bills, (apart from rent) at the end of each month, however it pays the taxes once a year. Its income tax rate is 25% and it will employ 12% as the discount rate. Suppose that there are 30 days in a month. Is it a valuable project for Ape?

E

Expert

Verified

Rent obtained = 5*$40*30*12 = 72000

Rent after tax = 54000

Parking space rent paid = 300*12 = 3600

Maintenance cost = 60*10*12 = 7200

Tax savings on expense = (3600+7200)*0.25 = 2700

1233_abc.jpg

The NPV is positive and high. Hence this is a worthwhile project for Ace.

   Related Questions in Corporate Finance

  • Q : Structure of Interest rates Which

    Which determines the shape of the term structure of Interest rates?

    		•
  • Q : When the dividend shows real money The

    The dividend is the part of the net income which the company distributes to shareholders. When the dividend shows real money, the net income is also real money. Is it true?

    		•
  • Q : State Exploitation of favorable market

    Exploitation of favorable market conditions: The firms after estimating WCR are in a position to clearly identify their status of excess current assets. After this realization they can use this knowledge to encash conditions arising in market even for

    		•
  • Q : Operational efficiency and

    Distinguish between Operational efficiency and informational efficiency?

    		•
  • Q : Is it correct to use valuation of

    Is this correct to use in the valuation of the shares of a certain company the “the real net assets value” which, as per to the Institute of Accounting and Auditing (ICAC), shows the “book value of shareholder’s equity, corrected through increa

    		•
  • Q : Why is Split useful Why is Split useful?

    Why is Split useful?

    		•
  • Q : Problem on sales collections The 2010

    The 2010 income statements of Leggett and Platt, inc. reports net sales of $4,076.1 million in 2010 and $4,250 million in 2009. The balance sheet reports accounts and other receivables, net of $550.5 million at December 31, 2010 and $640.2 million at December 31, 2009

    		•
  • Q : Problem on Corp stocking Cheever Corp

    Cheever Corp stock is selling at $40 a share. Its dividend in subsequent year will be $2 a share and its β is 1.25. Crane Company has similar growth rate as Cheever. The current stock price of Crane is $55 a share, and its dividend this year is $3. The riskless r

    		•
  • Q : Define the term Stock Market crash

    Stock Market Crash was responsible for the Great Depression. Middle class families lost all their savings as they had gambled the market on margin.Those banks which were under the loan ofbrokers’ started removing money out of the savings account

    		•
  • Q : Explain market efficiency hypothesis

    According to what I read inside a book, market efficiency hypothesis means that the expected average value of variations is zero in the shares price. Thus, the best estimate of the future price of a share is its price now, as this incorporates all the available inform

    		•