Reference no: EM132979077

As the financial advisor to Glamour Car Rentals you are evaluating the following types of cars to add to the fleet: -

Coolster: - A sports car with a cost of $150,000 and a useful life of 3 years. It will produce rental income of $110,000 per year and operating costs of $20,000 per year. A major service is required after 2 years costing $15,000. A salvage value of $40,000 is expected after 3 years. The required return is 10%.

Muncher: - A four-wheel drive vehicle costing $250,000 but with an expected useful life of 5 years. It will produce rental income of $140,000 per year and operating costs of $30,000 per year. A major service is required after 3 years costing $20,000. A salvage value of $50,000 is expected after 5 years. The required rate of return is 13%.

Income tax can be ignored.

Required

Problem (1) The NPV's of the two cars.

Problem (2) An analysis of the two cars assuming they are mutually exclusive and can be repeated indefinitely.