With the liberalization of the taxi industry in Singapore, you are considering buying a fleet of taxis for renting to interested cabbies. Each taxi will provide you with equal annual after-tax cash benefit of $26,280, i.e. cashflow at the end of each year. The useful life of each taxi is 10 years with an after-tax scrap value of $32,000, i.e. value at the end of 10 years. The money to purchase the car can earn 1% in a fixed deposit account at DDS Bank. The required rate of return for other taxi companies is about 6%. Using an appropriate discount rate (explain if you would use 1% or 6%), calculate the maximum price you would be willing to pay for a taxi. Ans: ($211,276.80)
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