A company needs to purchase a bus to transport employees for a period of 3 years at which time the bus will be sold The initial investment is $300,000, the resale price is estimated at $100,000 and the annual maintenance expense is $70,000. The TMAR is 20% pa and the depreciation regulated by law for buses is linear, fully depreciating the vehicle in 5 years. Considering that the company has the option to hire a bus company paying $200,000 per year for services and that the income tax rate is 35%, what would be the best option for the company? Note: the company is profitable.

Answer rating: 100% (QA)

To determine the best option for the company we need to calculate the net present value NPV of both options purchasing the bus and hiring a bus compan... View the full answer