Question

1. Omar is the owner of a private school is considering the purchase of sixschool buses to transport students to and from school events. The life of each bus is estimated to be 3 years, after which time the vehicles would have to be scrapped with no salvage value. School management doesn't have moneyrecently; it could go to finance through bank totally or partially. The school's revenue mainly comes from tuition fees. According to the previous

year's school made profit which encourage management to expand the revenue by purchasing buses.Suppose that Mr. Omar has hired you as a consultant to help them make the decision.Please draft an official memo to them with your analysis and recommendations.

questions:

• Briefly, summarize the key facts of the caseand identify the problem being faced by

Mr. Omar. In other words, what is the decision that they need to make?

what is the appropriate decision of these decisions for Omer ?

1.Replacement decision

2.Expansion decision

3.Diversification decision

((( please reply to me as soon as possible ))

Answer 1

Mr. Omar is facing an expansion decision in the given case as he is contemplating on expanding the existing revenue base of the school, which currently consists of only tution fees. With the current proposal, Mr. Omar is thinking to add an additional source of revnnue for the school i.e. school bus fees.

In order to expand the existing source of revenue, he needs 6 school buses to ferry the students from their respective places to school back and from. The buses will have a life of 3 years after which they would be discarded and would not fetch any price to the school. In order to purchase these buses, Mr. Omar doesn't have sufficent funds and therefore he is planning to finance these buses either completely or partially through bank loans or external financing.

Questions faced by Mr Omar are :

A) Shall he try to expand the revenue by purhcasing buses.

B) How much loan, partially or completely, he should take for the purchase.