The price that Quality Craft Rentals should charge per rental is $35.57.
Data and Calculations:
Fixed Costs Variable Costs Total Annual Costs
Canoe maintenance $ 3,100 $61,200 ($9 x 6,800) $64,300
Licenses and permits 3,800 0 3,800
Vehicle leases 6,200 0 6,200
Station lease 7,720 0 7,720
Advertising 6,800 $47,600 ($7 x 6,800) 54,400
Operating costs 21,800 $47,600 ($7 x 6,800) 69,400
Annual depreciation ($27,000/10) 2,700
Total annual costs $208,520
Before-tax return on assets 33,363
Total costs + returns $241,883
Total rentals per year 6,800
Price to charge per rental ($241,883/6,800) $35.57
Thus, the price per rental of $35.57 would ensure that Quality Craft Rentals makes an annual 16% <em>before-tax return on assets</em> using life-cycle costs.
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