Question

You have a $200,000.00 budget borrowed (Loan) from a bank, with an interest rate of 4.5% per annum. (Loan Date = January 1, 2018)

Cars purchased must be ONLY New 2018 models, Ford, Chevrolet AND Dodge cars mixed from the Big 3 US Auto manufacturers.

You can reinvest buying new cars from the profits you earn from the original rental car fleet fees; assume 80% of the vehicles will be rented at all times. Assume 1.5% product price increase each year from 2018 models you initially find.

You are the only person employed and have to pay yourself $65,000.00 per year.

Find:

1. The amount of the monthly payment if you want to repay the entire loan in 5 years.

2. How much do you charge per day for the rental of the car class category?

3. Only three categories of cars will be used; compact, medium, and full size cars will be purchased.

4. Allocate the rental price for each category class of car to generate monthly revenue.

5. Provide the list of cars you would purchase and the reason(s) for your purchase; the number of cars in each class category is up to you.

6. Be unique in providing unique cars for your rental company. (Think quality etc.)

I just need help setting up the problems/ the equations (interest and annuity) that needs to be used for each of the problems.

Thank you!

Answer 1

As per given case study, You borrowed $200000 from Bank at 4.5 % interest rate

now, 1) In case if you want to close the loan in 5 years then your monthly payment will be

The mathematical formula for calculating EMIs is:

EMI = [P x R x (1+R)^N]/[(1+R)^N-1], where P stands for the loan amount or principal, R is the interest rate per month
[if the interest rate per annum is 4.5%, then the rate of interest will be 4.5/(12 x 100)], and N is the number of monthly instalments (5x12=60).
  
So with this formula if you calculate you will get monthly payment amount $3,729 to complete the loan in 5 years

So Loan Amount = $200000
Total Interest = $23716
________________________________
Total Payment = $223716  

2)  

Total Bank installment will be $44748 for the year
Employee salary you will take $65000 per year Total $109748

If we assume that 80 % of car will be book for rental then in case you need to earn this money from this fund only.

Lets say you purchased 5 car with this amount and 4 car will be on rent for full year so

  
car rental cost will be = $ 109748/4*365 hence $ 75.16 per day

3) In case only three categories of car will be used then you need to buy from all varient of Compact, medium and full size with the amount of $200000.00

4) As calculated above that You need to earn minimum revenue of $ 109748 to run the show for a year in that case for all three varient you can decide the amount basis proportion as the sufficient info. is noot available about cost of these varient we cant justify the ratio and proportion.