Question

Matt Simpson owns and operates Quality Craft Rentals, which offers canoe rentals and shuttle service on the Nantahala River. Customers 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:

	Fixed Costs			Variable Costs
Canoe maintenance	$	2,450		$	4.00
Licenses and permits		3,150			0
Vehicle leases		5,550			0
Station lease		7,070			0
Advertising		6,150			2.00
Operating costs		21,150			2.00

Quality Craft Rentals began business with a $26,500 expenditure for a fleet of 30 canoes. These are expected to last 10 more years, at which time a new fleet must be purchased. Rentals have been stable at about 6,700 per year.

Required:

Matt is happy with the steady rental average of 6,700 per year. For this number of rentals, what price should he charge per rental for the business to make an annual 17% before-tax return on assets using life-cycle costs? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1