Hay Taxis operates a fleet of 10 taxis in the wider Brisbane metropolitan area. As with most taxi operators over the last 40-years, the company’s taxi fleet almost exclusively consists of Ford Falcons because of their lower purchase price, larger size, lower maintenance costs and efficiency (operate on liquefied petroleum gas - LPG). However, with Ford Australia recently announcing that it will cease selling Falcons in 2016 and a desire of Hay Taxis’ owner to convert to a ‘greener’ taxi fleet, the company has confirmed that it will start replacing decommissioned Falcons withToyota Camry Hybrids. Despite the definitive decision to move to the Camry Hybrids, Hay Taxis is yet to decide on the optimal replacement frequency for the new vehicles.
Task
Provide a detailed financial analysis of the problem at hand and prepare a detailed and concise report that advises the owner of Hay Taxis on the optimal replacement frequency of the vehicles.
In completing this task, the owner has requested the following:
- The financial analysis to be conducted in Excel and in a manner that can be easily adjusted for different scenarios.
- The report to be written such that it can be understood by a person with limited understanding of financial analytical tools. Furthermore, the report is to be no more than 600 words and it should include sections: Summary, Methodology, Recommendations and Limitations.
- The analysis and report should also examine whether the recommendations change if there was no need to replace the car’s battery in years 2 and 4.
In order to prepare your analysis and report, the owner has provided information in regards to the Camry Hybrid’s revenue and costs, and the company’s required rate of return (refer to Table 1).
Table 1: Taxi Analysis Information
Year 0 1 2 3 4 5 61
Outlay $35,000
Annual Maintenance $1,000 $1,000 $1,500 $1,500 $2,000 $2,000