The Elite Car Rental Corporation is contemplating expanding its short-term rental fleet by 30 automobiles at a cost of $900,000. Itexpects to keep the autos for only two years and to sell them at the end of that period for 60 percent, on average, of what they cost.The plan is to generate $21,000 of incremental revenue per additional auto in each year of operation. The controller estimates thatother costs will amount to 20 cents per kilometre on an average of 40,000 kilometres per car per year. She also estimates that thenew business will require an investment of $10,000 in additional working capital. The firm is in a 30 percent tax bracket and uses 12percent as a cost of capital.a. Calculate the NPV. (Do not round the intermediate calculations. Round the final answer to the nearest whole dollar. Negativeanswer should be indicated by a minus sign. Omit $ sign in your response.)NPV$204286งb. Should Elite purchase the automobiles?YesNo

The initial investment is the cost of the 30 automobiles plus the additional working capital. The…

Answered: The Elite Car Rental Corporation is…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

A delivery company is looking at converting their fleet of gasoline vans to electric vehicles. The all electric vans cost $75,000.00 today, minus an electric vehicle tax credit $7,500.00 and the reduced maintenance and fuel cost of $5,000. This brings today's MRC to $62,500.00 for each new electric van. The newer vans are expected to increase future MRP by $12,000.00 each year and have a productive life for five years. At the end of the fifth year, the firm expects to sell the used vans for a salvage value of $30,000.00. This firm is borrowing funds at 6% interest. The table indicates the possible investment for one electric vehicle.
United Pigpen is considering a proposal to manufacture high-protein hog feed. The project would make use of an existing warehouse, which is currently rented out to a neighboring firm. The next year's rental charge on the warehouse is $195,000, and thereafter, the rent is expected to grow in line with inflation at 4% a year. In addition to using the warehouse, the proposal envisages an investment in plant and equipment of $1.77 million. This could be depreciated for tax purposes straight-line over 10 years. However, Pigpen expects to terminate the project at the end of 8 years and to resell the plant and equipment in year 8 for $590,000. Finally, the project requires an immediate investment in working capital of $445,000. Thereafter, working capital is forecasted to be 10% of sales in each of years 1 through 7. Year 1 sales of hog feed are expected to be $6.10 million, and thereafter, sales are forecasted to grow by 5% a year, slightly faster than the inflation rate. Manufacturing costs…
Crow Corporation, a company that specializes in precision metal fabrication, is conducting a study to determine if it should update equipment now or later. If the cost 2 years from now is estimated to be $260,000, how much can the company afford to spend now if its minimum attractive rate of return is 12% per year compounded monthly?
Bilk.com, an online retailing company, proposes to spend $50 million on servers and other computer equipment for managing its Web site and processing orders. The company will depreciate the equipment over five years to zero. However, the company actually expects that it will be able to sell the equipment for $25 million at the end of five years. This equipment is expected to generate $30 million in sales in the first year and $21 million in cash operating costs in the first year. Both revenue and cash operating costs are expected to grow at an annual rate of 3% throughout the useful life of the equipment. There is no initial working capital requirement. However, the company will need to have a working capital balance at the end of each year equal to 20% of that year’s sales. The working capital can be fully recovered at the end of the project’s life. Bilk.com’s tax rate is 40%, and the cost of capital for this project is 8%. Calculate the cash flows in year 1. a. $2,825,000…
Beryl's Iced Tea currently rents a bottling machine for $51,000 per year, including all maintenance expenses. It is considering purchasing a machine instead, and is comparing two options: a. Purchase the machine it is currently renting for $150,000. This machine will require $23,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $260,000. This machine will require $15,000 per year in ongoing maintenance expenses and will lower bottling costs by $11,000 per year. Also, $35,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 7% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the rental of the machine. Assume also that the machines will be depreciated via the straight-line method over seven years and that they have a 10-year life with a negligible salvage value. The corporate tax rate is 30%. Should Beryl's Iced Tea continue…
Your firm is contemplating the purchase of a new $410,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. You will save $125,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $35,000 at the beginning of the project. Working capital will revert back to normal at the end of the project. If the tax rate is 21 percent, what is the IRR for this project?
McSwing Inc. has decided to sell a new line of golf clubs. They will sell for $925 per set and have a variable cost of $480 per set. The company has determined that they will sell 75,000 units per year for the next 5 years. The fixed cost each year will be $14 million dollars. The company has to spend $1 million dollars on R&D for the club as a one time expense. The plant and equipment required will cost $50 million and will depreciate straight line to zero over five years. The expected salvage value of the plant and equipment is $3 million dollars. The new clubs will require an increase in net working capital of $3.5 million. The tax rate is 23% and the cost of capital is 14%. Calculate NPV. Based on this information, will you do the project?
The ABC Corporation is considering introducing a new product, which will require buying new equipment for a monthly payment of $5,000. Each unit produced can be sold for $20.00. ABC incurs a variable cost of $10.00 per unit. Suppose that ABC would like to realize a monthly profit of $50,000. How many units must they sell each month to realize this profit?
Vandelay Industries is considering the purchase of a new machine for the production of latex. Machine A costs $ 3,210,000 and will last for six years. Variable costs are 37 percent of sales, and fixed costs are $350,000 per year. Machine B costs $5,455,000 and will last for nine years. Variable costs for this machine are 32 percent of sales and fixed costs are $240,000 per year. The sales for each machine will be $12.4 million per year. The required return is 9 percent, and the tax rate is 24 percent. Both machines will be depreciated on a straight-line basis. The company plans to replace the machine when it wears out on a perpetual basis. Calculate the EAC for each machine.
a company is considering the purchase of a new machine for 480,000. Management predicts that the machine can produce sales of 180,000 each year for the next 10 years. Expenses are expected to include direct materials, direct labor, and factory overhead totaling 120,000 per year including depreciation of 30,000 per year. The company's tax rate is 40%. What is the payback period for the new machine?
Your firm is contemplating the purchase of a new $535,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $ 30,000 at the end of that time. You will save $165,000 before taxes per year in order processing costs, and you will be able to reduce working capital by $60,000 (this is a one-time reduction). If the tax rate is 24 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
The Elite Car Rental Corporation is contemplating expanding its short-term rental fleet by 30 automobiles at a cost of $900,000. It expects to keep the autos for only two years and to sell them at the end of that period for 60 percent, on average, of what they cost. The plan is to generate $21,000 of incremental revenue per additional auto in each year of operation. The controller estimates that other costs will amount to 20 cents per kilometre on an average of 40,000 kilometres per car per year. She also estimates that the new business will require an investment of $10,000 in additional working capital. The firm is in a 30 percent tax bracket and uses 12 percent as a cost of capital a. Calculate the NPV (Do not round the intermediate calculations. Round the final answer to the nearest whole dollar. Negative answer should be indicated by a minus sign. Omit $ sign in your response.) b. Should Elite purchase the automobiles? O a. a)NPV = $82,286 ± 0.1% and b)NO O b. a)NPV = -$72,386 ±…

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS