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Fergy Smith, the financial advisor to Uncovered Car Rentals is evaluating the following types of cars to add to the fleet:- Topless:
Fergy Smith, the financial advisor to Uncovered Car Rentals is evaluating the following types of cars to add to the fleet:-
Topless:- A sporty convertible with a cost of $100,000 and a useful life of 5 years. It will produce rental income of $60,000 per year and operating costs of $10,000 per year. A major service is required after 3 years costing $15,000. A salvage value of $25,000 is expected after 5 Years. The required return is 10%.
Canopy:- A rugged off road vehicle costing $150,000 but with an expected useful life of only 3 years, due to the harsh conditions. It will produce rental income of $100,000 per year and operating costs of $20,000 per year. A major service is required after 2 years costing $10,000. A salvage value of $50,000 is expected after 3 Years. The required rate of return is 12%.
Income tax can be ignored.
Required
(1) The NPV's of the two cars.
(2) An analysis of the two cars assuming they are mutually exclusive and can be repeated indefinitely.
