Junker Rental Car has a contract with a garage for major repair service for $450 per car, every 6 months. Management estimates that for $350,000, the company could have its own facility, financed at 8% interest for 20 years, and a salvage value of $20,000. They will do their own car repairs at a cost of $200 per car, every 6 months. Ignoring taxes and other economic factors, what is the minimum number of cars needed to make the change feasible?

Junker Rental Car has a contract with a garage for major repair service for $450 per car, every 6 months. Management estimates that for $350,000, the company could have its own facility, financed at 8% interest for 20 years, and a salvage value of $20,000. They will do their own car repairs at a cost of $200 per car, every 6 months. Ignoring taxes and other economic factors, what is the minimum number of cars needed to make the change feasible?

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications

Section: Chapter Questions

Problem 30P

See similar textbooks

Similar questions

The Prescott Welding Company needs toacquire a new lift truck for transporting its final product to the warehouse. One alternative is to purchasethe truck for $45,000, which will be financed by thebank at an interest rate of 12%. The loan must berepaid in four equal installments, payable at the endof each year. Under the borrow-to-purchase arrangement, Prescott Welding would have to maintain thetruck at an annual cost of $1,200, also payable atyear-end. Alternatively, Prescott Welding could leasethe truck under a four-year contract for a lease payment of $12,000 per year. Each annual lease payment must be made at the beginning of each year.The truck would be maintained by the lessor. Thetruck falls into the five-year MACRS classification,and it has a salvage value of $10,000, which is theexpected market value after four years, at which timePrescott Welding plans to replace the truck, irrespective of whether it leases or buys. Prescott Weldinghas a marginal tax rate of 40% and a MARR of…
RJR Logistics needs a new color printer. The cost of the printer is $2,025, plus $380 per year in maintenance costs (the first maintence cost would occur in 1 year). The color printer will last for five years. Alternatively, a local company offers to lease the printer to RJR and do the maintenance as well. If the discount rate is 5.7%, what is the most RJR would be willing to pay per year to lease the color printer (the first lease payment would be due in one year)? The most RJR would be willing to pay per year to lease the color printer is closest to: O A. $897 B. $857 C. $884 D. $777
A salad oil bottling plant can either buy caps for the glass bottles at 5 cents each or install $500,000 worth of plastic molding equipment and manufacture the caps at the plant. The manufacturing engineer estimates the material, labor, and other costs would be 3 cents per cap. (a) If 11 million caps per year are needed and the molding equipment is installed, what is the payback period? (b) The plastic molding equipment would be depreciated by straightline depreciation using a 6-year useful life and no salvage value. Assuming a combined 26% income tax rate, what is the after-tax payback period, and what is the after-tax rate of return?
Wei-Ping's consulting firm needs new quarters. A downtown office building is ideal. The company can either buy or lease it. To buy the office building will cost $6 000 000. If the building is leased, the lease fee is $400 000 payable at the beginning of each year. In either case, the company must pay city taxes, maintenance, and utilities. Wei-Ping figures that the company needs the office space for only 15 years. Therefore, it will either sign a 15-year lease or buy the building. If it buys the building, it will then sell the building after 15 years. The value of the building at that time is estimated to be $15 000 000. What rate of return will Wei-Ping's firm receive by buying the office building instead of leasing it?
Beryl's Iced Tea currently rents a bottling machine for $54,000 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 $165,000. This machine will require $23,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $250,000. This machine will require $17,000 per year in ongoing maintenance expenses and will lower bottling costs by $12,000 per year. Also, $38,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 9% 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 28%. Should Beryl's Iced Tea continue…
Beryl's Iced Tea currently rents a bottling machine for $53,000 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 $20,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $265,000. This machine will require $18,000 per year in ongoing maintenance expenses and will lower bottling costs by $15,000 per year. Also, $35,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 8% 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 7 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 to…
Beryl's Iced Tea currently rents a bottling machine for $53,000 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 $265,000. This machine will require $19,000 per year in ongoing maintenance expenses and will lower bottling costs by $13,000 per year. Also, $38,000 will be spent upfront training the new operators of the machine.Suppose the appropriate discount rate is 8% 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 ten-year life with a negligible salvage value. The marginal corporate tax rate is 30%. Should Beryl's Iced Tea…
Beryl's Iced Tea currently rents a bottling machine for $55,000 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 $160,000. This machine will require $23,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $250,000. This machine will require $15,000 per year in ongoing maintenance expenses and will lower bottling costs by $12,000 per year. Also, $39,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 8% 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 ten-year life with a negligible salvage value. The corporate tax rate is 20%. Should Beryl's Iced Tea continue…
Beryl's Iced Tea currently rents a bottling machine for $53,000 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 $21,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $255,000. This machine will require $18,000 per year in ongoing maintenance expenses and will lower bottling costs by $13,000 per year. Also, $36,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 8% 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 ten-year life with a negligible salvage value. The corporate tax rate is 20%. Should Beryl's Iced…
Beryl's Iced Tea currently rents a bottling machine for $52,000 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 $255,000. This machine will require $15,000 per year in ongoing maintenance expenses and will lower bottling costs by $12,000 per year. Also, $35,000 will be spent upfront training the new operators of the machine. Suppose the appropriate discount rate is 8% 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 ten-year life with a negligible salvage value. The corporate tax rate is 20%. Should Beryl's Iced Tea…
Beryl's Iced Tea currently rents a bottling machine for $50,000 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 $165,000. 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 $17,000 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 9% 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…
Beryl's Iced Tea currently rents a bottling machine for $54,000 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 $160,000. This machine will require $24,000 per year in ongoing maintenance expenses. b. Purchase a new, more advanced machine for $265,000. This machine will require $16,000 per year in ongoing maintenance expenses and will lower bottling costs by $13,000 per year. Also, $37,000 will be spent up front to train the new operators of the machine. Suppose the appropriate discount rate is 9% per year and the machine is purchased today. Maintenance and bottling costs are paid at the end of each year, as is the cost of the rental 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 marginal corporate tax rate is 30%. Should Beryl's Iced…