Amanda Jones owns and operates Motorcycle Rentals Inc.(MRI). Customers can rent a motorcycle in one city and then return it at one of three designated cities. Following are the costs involved in providing this service each year: Motorcycle Rentals Inc. began business two years ago with a $400,000 expenditure for a fleet of 45 motorcycles. These are expected to last five more years, at which time a new fleet will be purchased. Jeremy is satisfied with the steady average rentals per year of 10,000.
Required:
1. What price should Jeremy charge per rental for the business to make a twenty percent life cycle profit?
2. What price should Jeremy charge per rental for the business to make a before-tax thirty percent return on investment?

Question

Amanda Jones owns and operates Motorcycle Rentals Inc.(MRI). Customers can rent a motorcycle in one city and then return it at one of three designated cities. Following are the costs involved in providing this service each year:  Motorcycle Rentals Inc. began business two years ago with a $400,000 expenditure for a fleet of 45 motorcycles. These are expected to last five more years, at which time a new fleet will be purchased. Jeremy is satisfied with the steady average rentals per year of 10,000.
Required:
1. What price should Jeremy charge per rental for the business to make a twenty percent life cycle profit?
2. What price should Jeremy charge per rental for the business to make a before-tax thirty percent return on investment?

Quizplus · Accepted Answer

The Answer of Amanda Jones owns and operates Motorcycle Rentals Inc.(MRI). Customers can rent a motorcycle in one city and then return it at one of three designated cities. Following are the costs involved in providing this service each year:  Motorcycle Rentals Inc. began business two years ago with a $400,000 expenditure for a fleet of 45 motorcycles. These are expected to last five more years, at which time a new fleet will be purchased. Jeremy is satisfied with the steady average rentals per year of 10,000.
Required:
1. What price should Jeremy charge per rental for the business to make a twenty percent life cycle profit?
2. What price should Jeremy charge per rental for the business to make a before-tax thirty percent return on investment?

Amanda Jones Owns and Operates Motorcycle Rentals Inc