--%>
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 : Does the equity of shareholders have

    Does the equity of shareholders represents the savings a company has accumulated by the years?

    		•
  • Q : Explain influences of financial

    Does financial leverage (i.e. debt) have any influence on the Free Cash Flow, upon the Cash Flow to Shareholders, upon the growth of the company and upon the value of the shares?

    		•
  • 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 : Problem on common stock The AB Corp

    The AB Corp stock has a β of 1.15 and it will pay a dividend of $2.50 next year. The expected rate of return of the market is 17% and the current riskless rate is 9%. The expected rate of progress of AB is 4%. Find the value of its common stock.

    		•
  • Q : DCF Analysis AB Corp. is in the

    AB Corp. is in the business of making white-board markers. They are computing the potential of investing in some new equipment that will enhance their manufacturing process.  The initial cost of the latest machinery is $470,000 plus a one-time installation cost o

    		•
  • Q : Data Case Please assist with the

    Please assist with the attached Data Case assignment

    		•
  • Q : Is ROE a correct measurement of return

    The ROE is the ratio among net income and Shareholders’ equity. The meaning of Return on Equity is return to shareholders. Therefore, is ROE a correct measurement of the return to shareholders?

    		•
  • Q : Types of Corporate Bonds What are the

    What are the various types of Corporate Bonds?

    		•
  • Q : Regarding WACC Regarding the WACC which

    Regarding the WACC which has to be applied to a project, must it be an expected return, the average historical return or an opportunity cost on similar projects?

    		•
  • Q : Public Finance which type of tax,

    which type of tax, direct or indirect is applicable in underdeveloped countries? Why? Show your critical areas and weaknesses.

    		•