Problem:

Zoso is a rental car company that is trying to determine whether to add 28 cars to its fleet. The company fully depreciates all its rental cars over five years using the straight-line method. The new cars are expected to generate $150,000 per year in earnings before taxes and depreciation for five years. The company is entirely financed by equity and has a 32 percent tax rate. The required return on the company's unlevered equity is 13.5 percent, and the new fleet will not change the risk of the company.

Required:

Question 1: What is the maximum price that the company should be willing to pay for the new fleet of cars if it remains an all-equity company?

Question 2: Suppose the company can purchase the fleet of cars for $389,000. Additionally, assume the company can issue $244,000 of five-year, 6.4 percent debt to finance the project. All principal will be repaid in one balloon payment at the end of the fifth year.

Question 3: What is the adjusted present value (APV) of the project?

Note: Please show guided help with steps and answer.