(Solution) - Eltern plc is an unlisted company with a turnover of -(2025 Original AI-Free Solution)

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Eltern plc is an unlisted company with a turnover of £6 million which runs a small fleet of taxis as part of its business. The managers of the company wish to estimate how regularly to replace the taxis. The fleet costs a total of £55 000 and the company has just purchased a new fleet. Operating costs and maintenance costs increase as the taxis get older. Estimates of these costs and the likely resale value of the fleet at the end of various years are presented below.

The company's cost of capital is 13 per cent per year.
Required:
(a) Evaluate how regularly the company should replace its fleet of taxis. Assume all cash flows occur at the year end and are after taxation (where relevant). Inflation may be ignored.
(b) Briefly discuss the main problems of this type of evaluation.