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Cost and time value of money

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Reference no: EM133113190

Unhappy with your current salary at a large investment bank, you are considering starting earning extra money by becoming a Uber driver. You believe that you can make additional 13 EUR per hour after taxes and other costs, driving 900 hours a year. However, you may assume that becoming a Uber premium class driver means that you'll have to buy a more expensive car (more expensive than you would normally buy) and the car will not drive that long. 

Here are the estimates (EUR): 

 

With Uber

Without Uber

Purchase price of a car

26 000

16 000

Car life (years)

3

5

Salvage value (at end of car life)

6 000

6 000

Depreciation method

Straight line for tax purposes to salvage value* 

None

* Car with Bolt has depreciation tax benefits

Your tax rate is 20% of profits you make and the discount rate is 7%. Estimate the annual after tax income you are expected to earn, with incremental car cost and time value of money factored in. Hint: you may use equivalent annuity to compute incremental change in annual cost of car ownership

Reference no: EM133113190

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