--%>
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 : What is Project Budget Project Budget :

    Project Budget: Collecting all costs related with completing a project is budget process. The Project Management Institute states that "aggregating the predictable costs of individual actions or work projects (establishing) an authorized cost baseline

    		•
  • Q : Define reasonable things that a company

    There are four methods a company can utilize the money this generates: a) Buying other assets or companies; b) Reducing debt of it; c) Distribute this to shareholders, and d) Increasing cash holdings of it.

  • Q : Structure of Interest rates Which

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

    		•
  • Q : What is the current example of a value

    What is the current example of a value company and would you buy it as an investment. Why or why not?

    		•
  • Q : How you can predict future evolution of

    Could we suppose that, as we cannot predict the future evolution of the value of shares, a good estimation would be to consider this constant during the next five years?

    		•
  • Q : Explain the branching structure of the

    Explain the branching structure of the binomial model.

    		•
  • Q : Explain Corporate Development Corporate

    Corporate Development: Corporate development is a term which references the range of planning options and strategies which can assist to move a company toward its targets. The procedure of this kind of strategic development can be exerted to just abou

    		•
  • Q : Problem on annual mortgage payment You

    You just took out a variable-rate mortgage on your new home. The mortgage value is $100,000, the term is 30 years, and initially the interest rate is 8%. The interest rate is fixed for 5 years, after which the time rate will be adjusted according to the prevailing rat

    		•
  • Q : Affect the value of the stock Is the

     Is the value of this stock dependent on how long you plan to hold it? In other words, if your planned holding period were 2 years or 5 years rather than 3 years, would this affect the value of the stock today, P0? Explain your answer.<

    		•
  • Q : Set of conflicts in reducing working

    Give an illustration of a set of conflicts encountered when attempting to reduce working capital?

    		•