A company is currently paying a sales representative $0.50 per mile to drive her car for company business. The company is considering supplying the representative with a car, which would involve the following:Option l: Continue to pay at the rate of 50 cents per mile.Option 2: Provide a company vehicle to the sales representative. A car costs$24,000 and has a service life of five years and a market value of $7,000 atthe end of that time. The cost of keeping the car in the garage during the off-hours amounts to $2,500 a year, and the cost of fuel, tires, and maintenance is 30 cents per mile. The car will be depreciated by MACRS using a recovery period of five years (20%, 32%, 19.20%, 11.52%, 11.52%).The firm's marginal tax rate is 40%. What annual mileage must the sales representative travel by car for the cost of the two options of providing transportation to be equal if the interest rate is 15%?(a) 36,345 miles (b) 41,235 miles (c) 45,233 miles (d) 47,518 miles
A company is currently paying a sales representative $0.50 per mile to drive her car for company business. The company is considering supplying the representative with a car, which would involve the following:
Option l: Continue to pay at the rate of 50 cents per mile.
Option 2: Provide a company vehicle to the sales representative. A car costs
$24,000 and has a service life of five years and a market value of $7,000 at
the end of that time. The cost of keeping the car in the garage during the off-hours amounts to $2,500 a year, and the cost of fuel, tires, and maintenance is 30 cents per mile. The car will be depreciated by MACRS using a recovery period of five years (20%, 32%, 19.20%, 11.52%, 11.52%).
The firm's marginal tax rate is 40%. What annual mileage must the sales representative travel by car for the cost of the two options of providing transportation to be equal if the interest rate is 15%?
(a) 36,345 miles (b) 41,235 miles (c) 45,233 miles (d) 47,518 miles
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