60.1K

Verified Solution

Link Copied!

b) Compute (1) the cash payback period and (2) the annual rate of return. (Round to two decimals.)

c) Compute the net present value of the commuter service. (Round to the nearest dollar.)

d) What should Anthony conclude from these computations?

Please and thank you!!!

Anthony Walker is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Anthony, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Anthony has gathered the following investment information. 1. Five used vans would cost a total of $74,115 to purchase and would have a 3 -year useful life with negligible salvage value. Anthony plans to use straight-line depreciation. 2. Ten drivers would have to be employed at a total payroll expense of $47,400. 3. Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $15,900, Maintenance $3,500, Repairs $4,300, Insurance $3,800, and Advertising $2,600. 4. Anthony has visited several financial institutions to discuss funding. The best interest rate he has been able to negotiate is 15%. Use this rate for cost of capital. 5. Anthony expects each van to make 10 round trips weekly and carry an average of 6 students each trip. The service is expected to operate 30 weeks each year, and each student will be charged $12 for a round-trip ticket. Click here to view PV table. (a) Determine the annual (1) net income and (2) net annual cash flows for the commuter service. (Round answers to 0 decimal places, eg. 125.) Net income Net annual cash flows $ Attempts: 0 of 2 used (b) The parts of this question must be completed in order. This part will be available when you complete the part above

Answer & Explanation Solved by verified expert

See Answer