What is the maximum price that the company should be willing

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

Questions Cloud

How will this impact retained earnings : XYZ Company has a net loss of $100,000 for the year and pays dividends of $30,000 to its shareholders. How will this impact Retained Earnings?

Three decimal places.$ million : What does the NPV become if the tax rate falls to 35%? Round your answer to three decimal places.$ million

Preferred stock or common stock as an investmen twhy : Write a 500 - to 800-word paper explaining why preferred stock is referred to aspreferred and what some of the features added to preferred stock are that make it more attractive to investors. Would you select preferred stock or common stock as..

Managerial accounting : Managerial accounting.. a) focuses primarily on reporting to regulatory agencies

What is the maximum price that the company should be willing : 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 (£).)

Identify three potential users and design a subschema for ea : Identify three potential users and design a subschema for each. Justify your design by explaining why each user needs access to that data element.

How old will each be when she becomes a millionaire : If the two women's funds earn the same returns in the future as in the past, how old will each be when she becomes a millionaire?

What do you think of the junk food tax : What do you think of the “junk food” tax? Do you think it is a good method of deterring people (parents and kids) from purchasing junk food? If you disagree with the “junk food” tax, what other solution(s) do you have for the high rate of obesity in ..

A precise hurdle rate at any business or industry : What are some obstacles to discerning a precise hurdle rate at any business or industry? In what ways might you adjust your hurdle-rate calculations to compensate for "real-world" imprecision? What

User Account

All Pages