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Pete Castillio, the owner-manager of Cab Company, is considering purchasing a new all-electric unit for...

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Accounting

Pete Castillio, the owner-manager of Cab Company, is considering purchasing a new all-electric unit for his taxi fleet. Pete has been focusing on upgrading from his current reliable fleet of hybrid vehicles to fully plug-in electric vehicles as he believes the reduced maintenance and increased reliability of these vehicles is a worthwhile venture.

The electric automobile would cost $50,000 (CCA class 16 - 40%) and would have a salvage value of $2,500 as the current unit at the end of the fifth year. Based on his previous experience, he projects daily revenues of $375 from this new taxi unit and average operating costs of $4,600 per month for incremental fuel and maintenance expenses and $65,000 per year for a driver salary.

Kamloops Cab Company maintains an average marginal tax rate of 35% and Pete expects a minimum after-tax return of 15% on his taxi investments.

Required submit your handwritten response via the assignment moodle dropbox to the following:

1) Compute the net present value of this investment. Show all details of your calculations.

2) Discuss any additional quantitative and/or qualitative issues of your analysis.

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