Exercise - Life Cycle Costing
Matt Simpson owns and operates Quality Craft Rentals, which offers canoe rentals and shuttle service on the Nantahala River. Customer can rent canoes at one station, enter the river there, and exit at one of two designated locations to catch a shuttle that returns them to their vehicles at the station they entered. Following are the costs involved in providing this service each year:
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Fixed Costs
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Variable Costs
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Canoe maintenance
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$2,300
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$2.50
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Licenses and permits
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$3,000
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$0.00
|
|
Vehicle leases
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$5,400
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$0.00
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Station lease
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$6,920
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$0.00
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Advertising
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$6,000
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$0.50
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Operating costs
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$21,000
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$0.50
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Quality Craft Rentals began business three years ago with a $21,000 expenditure for a fleet of 30 canoes. These are expected to last seven more years, at which time a new fleet must be purchased.
Required - Matt is happy with the steady rental average of 6,400 per year. For this number of rentals, what price should be charged per rental for the business to make a 20 percent life-cycle return on investment?
Target Life-Cycle ROI 20.00%
Annual rentals 6,400