...

Spread the word.

Share the link on social media.

Share
  • Facebook
Have an account? Sign In Now

Sign Up

Sign Up to our social questions and Answers Engine to ask questions, answer people’s questions, and connect with other people.

Have an account? Sign In

Have an account? Sign In Now

Sign In

Login to our social questions & Answers Engine to ask questions and answer student's questions & connect with other students.

Sign Up Here

Forgot Password?

Don't have account, Sign Up Here

Forgot Password

Lost your password? Please enter your email address. You will receive a link and will create a new password via email.

Have an account? Sign In Now

Sorry, you do not have permission to ask a question, You must login to ask a question.

Forgot Password?

Need An Account, Sign Up Here

Sorry, you do not have permission to add post.

Forgot Password?

Need An Account, Sign Up Here

Please briefly explain why you feel this question should be reported.

Please briefly explain why you feel this answer should be reported.

Please briefly explain why you feel this user should be reported.

Sign InSign Up

Linuqa Students help

Linuqa Students help Logo Linuqa Students help Logo
Search
Ask A Question

Mobile menu

Close
Ask a Question
  • Home
  • Groups page
  • Questions
  • Tags
  • Badges
  • Help
  • New Questions
  • Trending Questions
  • Must read Questions
  • Hot Questions
Home> Questions>Q 2775
Next
Answered
Anonymous
  • 0
Anonymous
Asked: March 10, 20222022-03-10T21:54:50+02:00 2022-03-10T21:54:50+02:00In: Management Accounting 310 - GMA711S

A car rental company is considering setting up a division to provide chauffeur driven limousines for weddings and other eventS,!j The proposed investment will include the purchase of a fleet of 20 limousines at a cost of $200 000 each. It is estimated that limousines will have a useful life of five years and a resale value of $30 000 each at the end of their useful life. The company uses,:; the straight line method of depreciation. Revenue and variable costs Each limousine will be hired to customers for $800 per day. The variable costs, including fuel, cleaning and the chauffeur’s wap..,:es, will be $300 per day. The limousines will be available for hire 350 days of the year A market specialist was hired at a cost of $20 000 to estimate the demand for the limousines in Year 1. The market specialist estimated that each limousine will be hired for 260 days in Year 1 and that the number of days’ hire will increase by ten days each year for the remaining life of the project. :Fixed costs Each limousine will incur fixed costs, including maintenance and depreciation, of $45 000 a year. The administration of the. division is expected to cost $300 000 each year. The garaging of the limousines will not require any additional investment but,. will utilize existing facilities for which there is no other use. The head office will charge the division an annual fee of 10 per Ce4i: of sales revenue for the use of these facilities. Taxation The company’s financial director has provided the following taxation information: Tax depreciation: 25 per cent per annum of the reducing balance, with a balancing adjustment in the year of disposal. The limousines will be eligible for tax depreciation. Taxation rate: 30 per cent of taxable profits. Half of the tax is payable in the year in which it arises, the balance is paid in the following year. Other ira_formation Ignore inflation. The company uses a cost of capital of 12 per “Cent per annum to evaluate projects of this type. Requited: (a) Evaluate whether the company should go ahead with the project: You should use net present value as the basis of your evaluation. (14 ii arts) The company is also carrying out a review of its existing car rental business. The company is deciding whether it should replace the cars that it uses after one, two or three years. The cars will not be kept longer than three years due to the higher riSE of breakdowns. The estimated relevant cash flows for the three possible options for each car can be obtained from the following information: Year Cash Residual outflows value $ $ 0 (30 OM 1 (1500) 21000 (2700) 15 000 3 (3600) 9000 The company uses a cost Of capital of 12 per cent for decisions of this type. Required: (h) Calculate, using the annualized equivalent method, whether the cars should be replaced after one, two or three years. You should ignore taxation and inflation. (7 marks) (de Explain-the limitations of the annualized equivalent method for making decisions to replace non-current assets. (4 marks) (Tota125 marks)

  • 0

A car rental company is considering setting up a division to provide chauffeur driven limousines for weddings and other event. The proposed investment will include the purchase of a fleet of 20 limousines at a cost of $200 000 each. It is estimated that limousines will have a useful life of five years and a resale value of $30 000 each at the end of their useful life. The company uses,:; the straight line method of depreciation.

Revenue and variable costs

Each limousine will be hired to customers for $800 per day. The variable costs, including fuel, cleaning and the chauffeur’s wages, will be $300 per day. The limousines will be available for hire 350 days of the year A market specialist was hired at a

cost of $20 000 to estimate the demand for the limousines in Year 1. The market specialist estimated that each limousine will

be hired for 260 days in Year 1 and that the number of days’ hire will increase by ten days each year for the remaining life of the project.

:Fixed costs

Each limousine will incur fixed costs, including maintenance and depreciation, of $45 000 a year. The administration of the.division is expected to cost $300 000 each year. The garaging of the limousines will not require any additional investment but,. will utilize existing facilities for which there is no other use. The head office will charge the division an annual fee of 10 per Ce4i: of sales revenue for the use of these facilities.

Taxation

The company’s financial director has provided the following taxation information:

Tax depreciation: 25 per cent per annum of the reducing balance, with a balancing adjustment in the year of disposal. The limousines will be eligible for tax depreciation.

Taxation rate: 30 per cent of taxable profits. Half of the tax is payable in the year in which it arises, the balance is paid in the

following year.

Other ira_formation

Ignore inflation.

The company uses a cost of capital of 12 per “Cent per annum to evaluate projects of this type.

Requited:

(a) Evaluate whether the company should go ahead with the project: You should use net present value as the basis of your

evaluation.

(14 ii arts)

The company is also carrying out a review of its existing car rental business. The company is deciding whether it should replace the cars that it uses after one, two or three years. The cars will not be kept longer than three years due to the higher riSE of

breakdowns.

The estimated relevant cash flows for the three possible options for each car can be obtained from the following information:

Cash                  Residual

outflows                    value

Year                     $                           $

0                 (30 OM

1                    (1500)                 21000

(2700)                 15 000

3                    (3600)                   9000

The company uses a cost Of capital of 12 per cent for decisions of this type.

Required:

(h) Calculate, using the annualized equivalent method, whether the cars should be replaced after one, two or three years. You should ignore taxation and inflation.

(7 marks)

(de Explain-the limitations of the annualized equivalent method for making decisions to replace non-current assets.

gma
  • 2 2 Answers
  • 141 Views
  • 0 Followers
  • 0
    • Report
  • Share
    Share
    • Share onFacebook
    • Share on Twitter
    • Share on LinkedIn
    • Share on WhatsApp

Leave an answer
Cancel reply

You must login to add an answer.

Forgot Password?

Need An Account, Sign Up Here

2 Answers

  • Voted
  • Oldest
  • Recent
  • Random

Sorry, you do not have permission to view answers.

Sidebar

Ask A Question

Stats

  • Questions 315
  • Answers 246
  • Posts 3
  • Comment 1
  • Best Answers 205
  • Users 38
  • Most visited
  • Answers
  • Anonymous

    While James Craig and his former classmate Paul Donnie both ...

    • 1 Answer
  • Linus Moses

    FINANCIAL ACCOUNTING 202 -2021 FIRST OPPORTUNITY EXAMINATION QUESTION PAPER -Multiple ...

    • 1 Answer
  • Linus Moses

    Let us assume a closed economy with government expenditure (Go), ...

    • 2 Answers
  • Anonymous

    2. A bakery makes $4 profit on its wedding cakes ...

    • 1 Answer
  • Anonymous

    A car rental company is considering setting up a division ...

    • 2 Answers
  • Linus Moses
    Linus Moses added an answer (a) List any requirements related to the conduct of an… May 26, 2023 at 6:40 pm
  • Linus Moses
    Linus Moses added an answer A)   May 15, 2023 at 2:22 pm
  • Linus Moses
    Linus Moses added an answer Answers E. Price Skimming Penetration Pricing Premium Pricing Product Bundling… May 15, 2023 at 1:27 pm
  • Linus Moses
    Linus Moses added an answer b)   May 11, 2023 at 4:59 am
  • Anonymous added an answer   a) The demand function equation can be written as:… May 11, 2023 at 4:46 am

Trending Tags

accounting arr auditing cma612s cost fac fac612s gfa gfa711s gma gma711s gta gta711s ias 8 ima612s irr mfn710s npv tax vat

Explore

  • Home
  • Groups page
  • Questions
  • Tags
  • Badges
  • Help
  • New Questions
  • Trending Questions
  • Must read Questions
  • Hot Questions

Footer

Linuqa

We want to connect the people who have knowledge to the people who need it, to bring together people with different perspectives so they can understand each other better, and to empower everyone to share their knowledge

LEGAL

  • Terms of Use
  • Privacy Policy
  • Cookie Policy

Get help

  • Knowledge Base
  • Support

News letters

Follow

2022©Copyright | linuqa.com | All Rights Reserved
With Love by linusite

Insert/edit link

Enter the destination URL

Or link to existing content

    No search term specified. Showing recent items. Search or use up and down arrow keys to select an item.
      Seraphinite AcceleratorOptimized by Seraphinite Accelerator
      Turns on site high speed to be attractive for people and search engines.