The required return applicable to valuing the car

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Reference no: EM131859474

Valuation fundamentals Personal Finance Problem Imagine that you are trying to evaluate the economics of purchasing an automobile. You expect the car to provide annual after-tax cash benefits of $1,388 at the end of each year and assume that you can sell the car for after-tax proceeds of $5,000 at the end of the planned 5 -year ownership period. All funds for purchasing the car will be drawn from your savings, which are currently earning 7% after taxes.

a. Identify the cash flows, their timing, and the required return applicable to valuing the car.

b. What is the maximum price you would be willing to pay to acquire the car? Explain.

a. Identify the cash flows, their timing, and the required return applicable to valuing the car.

The amount of the annual after-tax benefit, CF, associated with the purchase of the car is $_____. (Round to the nearest dollar.)

The amount, FVn, for which you assume you can sell the car at the end of the ownership period is $_____. (Round to the nearest dollar.)

The number of years, n, you intend to own the car is _____ years. (Type a whole number.)

The minimum after-tax required rate of return, r, you need in order to justify removing funds from your savings account is _____% (Type a whole percentage.)

b. The maximum price you would be willing to pay to acquire the car is $_____. (Round to the nearest cent.)

Reference no: EM131859474

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