Life-Cycle Pricing Matt Simpson owns and operates Quality Craft Rentals, which offers canoe rent- als 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
|
$ 2,300
|
$2.50
|
|
Licenses and permits
|
3,000
|
0
|
|
Vehicle leases
|
5,400
|
0
|
|
Station lease
|
6,920
|
0
|
|
Advertising
|
6,000
|
0.50
|
|
Operating costs
|
21,000
|
0.50
|
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 he charge per rental for the business to make a 20 percent life-cycle return on investment?