50.1K

Verified Solution

Link Copied!

(b) Your answer is partially correct. Compute (1) the cash payback period and (2) the annual rate of return. (Round answers to 2 decimal places, eg. 10.50.) Cash payback period years Annual rate of return % eTextbook and Media Solution Attempts: 2 of 2 used (c) Compute the net present value of the commuter service. (Round answer to 0 decimal places, eg. 125. If the net present value is negative, use either a negative sign preceding the number eg 45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value 18c. Uhe thispite for oby of ckital. Mark Harris is an accountine major at a midwestern state univerufy located approximately co mies from a major city Mamy of the students attending the university are from the metropolitan area and visit their homes regularty on the weekends. Mark an entrepreneur at heart, realizes that few good commuting aiternatives are avalabie for students doing weekend travel. He believes that a weokend cominuting service could be organized and run proftabily from several suburban and downtown shopping mall Iocations. Mark has gather ed the followine investment infermation. 1. Five used vans would cost a total of $76,137 to purchase and would have a 3-vear irichul ilfe with negliphlir salyage value. Mark plans to use straight-line depreciation. 2. Ten drivers would have to be employed at a tatal parroll eapense of $47.400. 3. Other annual out-of-pochet expenses associated with rimning the commuter service would include Gasioline 515.800, Maintenance 33.200, Repairs 33,700 , Insurance 54,400, and Advertising \$2.800. 4. Mark has visited several francial institutions to discuss funding. The best interest rate he has been able tn negotiate is 15\%. Use this rate for cost of capiral: 5. Mark expects each van to make 10 round trias weekly and carry an average of 6 students each tria. The service is expected to operate 30 weeks each year, and each student will be charged $12 for a round-trip ricket. fart inners Averee ietring arran Mark Harris 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. Mark, 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. Mark has gathered the following investment information. 1. Five used vans would cost a total of $76,137 to purchase and would have a 3 -year useful life with negligible salvage value. Mark 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 $15,800, Maintenance $3,200, Repairs $3,700, Insurance $4,400, and Advertising $2,800. 4. Mark 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. Mark 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. (a) Determine the annual (1) net income and (2) net annual cash flows for the commuter service. (Round answers to o decimal places, e.g. 125.) Net income Net annual cash flows Compute (1) the cash payback period and (2) the annual rate of return. (Round answers to 2 decimal piaces. e.g. 10.50.) Cash payback period years Annual rate of return \% Compute the net present value of the commuter service. (Round answer to 0 decimal places, e.g. 125. If the net present value is negative, use either a negative sign preceding the number eg - 45 or parentheses es (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value eTextbook and Media

Answer & Explanation Solved by verified expert

See Answer