Team Case 1
HACKNEY-RENT-A-CAR
The management at Hackney’s Southwestern Regional (HSR) are interested in determining the
optimalfleet purchase mix for the coming year. There are four types of vehicles that can be
purchased: standard, intermediate, compact and subcompact. All cars purchased are depreciated
and paid off for over a two-year period, after which they are sold in a secondary market. Table 1
presents the wholesale purchase price and revenues(the second year includes the resale value)
over the two-year period for each type of car:
Table 1 – Purchase Price and Net Revenue Summary
Type Price ($) 1st yr. ($) 2nd yr. ($)
Standard 20,000 14,000 23,000
Intermediate 15,000 9,000 15,000
Compact 12,000 7,000 13,000
Subcompact 9,000 5,000 9,000
HSR has established a budget of $5 million for funding the purchases this year. It can either pay
the entire amount for the cars or make a down payment and pay the remaining balance over a
two-year period. The financing company requires at least a 20% down payment and that at least
50% of the purchase price plus interest must be paid by the end of the first year. The financing
company is currently charging 8%. HSR uses a 10% discount rate for financial planning.
Hackney management estimates that they can rent all of the cars that are purchased. However, in
order to meet overallmarket demand they wish that each vehicle category represent at least 15
percent and no more than 50 percent of the total number of vehicles purchased.
Deliverable Instructions
Two LP models should be included with your Hackney submission, one for cash purchase and
one for the financing option. Be sure that the case report introduction address all Freshman statistics
