A sales engineer has the following alternatives .to consider in touring his sales territory. (a) Buy a

Question:

A sales engineer has the following alternatives .to consider in touring his sales territory.

(a) Buy a new car for $14,500. Salvage value is expected to be about $5000 after 3 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 30% incremental tax bracket. Use MACRS depreciation.

Depreciation
Depreciation is an important concept in accounting. By definition, depreciation is the wear and tear in the value of a noncurrent asset over its useful life. In simple words, depreciation is the cost of operating a noncurrent asset producing... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...