Wednesday, January 8, 2014

01 Finance Matters: Example 16 Solution

A salesman buys a second-hand car for $40000 and hires it out for a period of 24 weeks at a charge of $520 per week . Insurance costs him $1800 and repairs during the   period cost $450. He then sells the car for $38500.
He buys another car for $40000 and plans to hire it out at a lower weekly rate, but, in addition, he imposes a mileage charge of 15¢ per km travelled.
He estimates that the car will on average travel 600 km per week and that at the end of the 24 weeks, he will again be able to sell the car for $38500.
(a)  Calculate the profit made on his first transaction.                                                           [3]
       Given that for the second car the charges for insurance and repairs remain the same
       and his profit is to be 15% of his initial outlay of $40000, calculate
(b)  the amount of money he must make from the rental of car,                                            [3]

(c)  the weekly rate he must charge to make this profit.                                                        [2]


(a) 24 x 520 - 1800 - 450 = 10230
10230 +38500 -  40000 = $8730

(b) 0.15 x 40000 + 450 +1800 +40000 - 38500 = $9750

(c) (9750 - 0.15 x 600 x 24)/24 = $316.25


  1. Please include the following:
    .1 Author
    .2 statements for (a), (b) and (c)

    Thank you

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