A company is currently paying its employees $0.51 per mile to drive their own cars when on company business. However, it is considering supplying employees with cars, which would involve the following cost components: car purchase at $22,000 with an estimated three-year life; a net salvage value of $5,000; taxes and insurance at a cost of $1,000 per year; and operating and maintenance expenses of $0.25 per mile. If the interest rate is 10% and the company anticipates an employee's annual travel to be 30,000 miles, what is the equivalent cost per mile (without considering income tax)? Which plan is better?
A company is currently paying its employees $0.51 per mile to drive their own cars when on company business. However, it is considering supplying employees with cars, which would involve the following cost components: car purchase at $22,000 with an estimated three-year life; a net salvage value of $5,000; taxes and insurance at a cost of $1,000 per year; and operating and maintenance expenses of $0.25 per mile. If the interest rate is 10% and the company anticipates an employee's annual travel to be 30,000 miles, what is the equivalent cost per mile (without considering income tax)? Which plan is better?
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 9P
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A company is currently paying its employees $0.51 per mile to drive their own cars when on company business. However, it is considering supplying employees with cars, which would involve the following cost components: car purchase at $22,000 with an estimated three-year life; a net salvage value of $5,000; taxes and insurance at a cost of $1,000 per year; and operating and maintenance expenses of $0.25 per mile. If the interest rate is 10% and the company anticipates an employee's annual travel to be 30,000 miles, what is the equivalent cost per mile (without considering income tax)? Which plan is better?
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