Avis company is carrying out a review of its existing car rental business. The company is...

 

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Avis company is carrying out a review of its existing car rental business. The company is deciding whether it should replace cars that it uses after one, two or three years. The cars will not be kept for longer than three years due to the higher risk of breakdowns. The estimated relevant cash flows for the three possible options for each car can be obtained from the follow information: Cash outflows (N$) Residual value (N$) Discount Factor @12% Year 0 1 2 3 (300 000) (15 000) 210 000 (27 000) 150 000 (36 000) 90 000 1 0.893 0.797 0.712 The company uses a cost of capital of 12% for decisions of this type. Ignore taxation and inflation. What is the optimal replacement cycle? (just write the number only) Avis company is carrying out a review of its existing car rental business. The company is deciding whether it should replace cars that it uses after one, two or three years. The cars will not be kept for longer than three years due to the higher risk of breakdowns. The estimated relevant cash flows for the three possible options for each car can be obtained from the follow information: Cash outflows (N$) Residual value (N$) Discount Factor @12% Year 0 1 2 3 (300 000) (15 000) 210 000 (27 000) 150 000 (36 000) 90 000 1 0.893 0.797 0.712 The company uses a cost of capital of 12% for decisions of this type. Ignore taxation and inflation. What is the optimal replacement cycle? (just write the number only)

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Answer To determine the optimal replacement cycle for Avis companys car rental business we need to c... View the full answer