Suppose you are a financial manager at a car rental company. The company recently purchased a batch of luxury cars that will be on the market for rent soon. The purchasing price of each car is $100,000 and the annual maintenance costs expect to be $15, 000 in year 1 through 5. These cars will be depreciated over 5 years using straight-line depreciatin and there will be no salvage value after that. Assume the required rate of return is 8% and the corporate tax rate is 21%. Now here comes a potential customer who is interested in renting the car for 5 years. Suppose the 5 lease payment will each occur at the beginning of the year. What is the pre-tax rental price you need to charge the customer in order for a break-even within these 5 years?

Suppose you are a financial manager at a car rental company. The company recently purchased a batch of luxury cars that will be on the market for rent soon. The purchasing price of each car is $100,000 and the annual maintenance costs expect to be $15, 000 in year 1 through 5. These cars will be depreciated over 5 years using straight-line depreciatin and there will be no salvage value after that. Assume the required rate of return is 8% and the corporate tax rate is 21%. Now here comes a potential customer who is interested in renting the car for 5 years. Suppose the 5 lease payment will each occur at the beginning of the year. What is the pre-tax rental price you need to charge the customer in order for a break-even within these 5 years?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 7EA: A mini-mart needs a new freezer and the initial Investment will cost $300,000. Incremental revenues,...

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