What is the maximum price that the company should be willing

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Reference no: EM13304320

Zoso is a rental car company that is considering whether to add 20 cars to its fleet. The company depreciates all its rental cars using 25 per cent reducing balance, and at the end of five years assumes that the cars will be sold at residual value. The new cars are expected to generate £137,000 per year in earnings before taxes and depreciation for five years. The company is entirely financed by equity and has a 30 per cent tax rate. The required return on the company's unlevered equity is 8 per cent, and the new fleet will not change the risk of the company.

Requirement 1:

What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company? (Do not include the pound sign (£).)

Reference no: EM13304320

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