A sales engineer has the following alternatives to consider in touring his sales territory. A. Buy a 2-year old used car for $14,500. Salvage value is expected to be about $5000 after 3 more years. Maintenance and insurance cost is $1000 in the first year and increases at the rate of $500/year in subsequent years. Daily operating expenses are $50/day. B. Rent a similar car for $80/day. Based on a 12% after-tax rate of return, how many days per year must he use the car to justify its purchase? You may assume that this sales engineer is in the 23% incremental tax bracket. Use MACRS depreciation.
A sales engineer has the following alternatives to consider in touring his sales territory. A. Buy a 2-year old used car for $14,500. Salvage value is expected to be about $5000 after 3 more years. Maintenance and insurance cost is $1000 in the first year and increases at the rate of $500/year in subsequent years. Daily operating expenses are $50/day. B. Rent a similar car for $80/day. Based on a 12% after-tax rate of return, how many days per year must he use the car to justify its purchase? You may assume that this sales engineer is in the 23% incremental tax bracket. Use MACRS depreciation.
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
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A sales engineer has the following alternatives to consider in touring his sales territory. A. Buy a 2-year old used car for $14,500. Salvage value is expected to be about $5000 after 3 more years. Maintenance and insurance cost is $1000 in the first year and increases at the rate of $500/year in subsequent years. Daily operating expenses are $50/day. B. Rent a similar car for $80/day. Based on a 12% after-tax
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