OT is a taxi business. OT is owned by two brothers who set up the business as a private limited company to benefit from limited liability. The majority of OT's customers are people travelling to and from the local airport. OT uses a competitive pricing strategy, charging customers $0.50 per kilometre travelled. OT has completed some market research to try and identify new market segments that the business could sell to (See Table 1). Table 1: Market research data on potential market segments | Market segment | Characteristics | |---|---| | Shoppers travelling to and from the main shops | • average journeys less than 3 kilometres <br> • travelling between 09:00–17:00 <br> • no brand loyalty <br> • pick up customers on street | | Business people travelling to and from the train station | • average journey 5 kilometres <br> • travelling between 06:00–08:00 and 17:00–19:00 <br> • high brand loyalty <br> • customers will telephone to book a taxi in advance | | People travelling to and from restaurants and theatres | • average journey more than 5 kilometres <br> • travelling between 19:00–02:00 <br> • some brand loyalty <br> • pick up most customers on street. Some customers will book in advance | OT owns four taxis. To be able to target a new market segment the business will need another vehicle. This would increase the number of journeys the business can make. OT has identified three possible options for the new taxi. Table 2 contains data about the three options. Table 2: Data for the new vehicle | | Vehicle X | Vehicle Y | Vehicle Z | |---|---|---|---| | Variable costs (per kilometre) | $0.25 | $0.20 | $0.30 | | Fixed costs (per month) | $500 | $660 | $380 | | Break even (number of kilometres each month) | 2000 | 2200 | X | OT does not currently have the $30000 needed to purchase the new vehicle outright. It will need to use external sources of finance.