A car leasing company purchases cars from a manufacturer and immediately rents them out to clients on a five-year contract. The current purchase price of each car is £30,000 and the company expects that the sale price of each car at the end of the contract will be £12,000. The rental income is payable continuously throughout the five-year period and increases by £500 at the end of each year. Calculate the initial annual rental rate the car hire company must charge in order to achieve an internal rate of return of 7% per annum.
A car leasing company purchases cars from a manufacturer and immediately rents them out to clients on a five-year contract. The current purchase price of each car is £30,000 and the company expects that the sale price of each car at the end of the contract will be £12,000. The rental income is payable continuously throughout the five-year period and increases by £500 at the end of each year. Calculate the initial annual rental rate the car hire company must charge in order to achieve an internal rate of return of 7% per annum.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A car leasing company purchases cars from a manufacturer and immediately rents them out
to clients on a five-year contract.
The current purchase price of each car is £30,000 and the company expects that the sale
price of each car at the end of the contract will be £12,000. The rental income is payable
continuously throughout the five-year period and increases by £500 at the end of each year.
Calculate the initial annual rental rate the car hire company must charge in order to achieve
an internal rate of return of 7% per annum.
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