80.2K

Verified Solution

Link Copied!

u recommend P12-2A Lon Timur is an accounting major at a midwestern state d net approximately 60 miles from a major city. Many of the students attending the university weekends. Lon, an are from the metropolitan area and visit their homes regularly on the w entrepreneur at heart, realizes that few good commuting alternative students doing weekend travel. He believes that a weekend commutin organized and run profitably from several suburban and downtown shopping tions. Lon has gathered the following investment information 1. Five used vans would cost a total of $75,000 to purchase and would have a 3-year are available service could be ation. useful life with negligible salvage value. Lon plans to use straight-line depreci 2. Ten drivers would have to be employed at a total payroll expense of $48,000. Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $16,000, Maintenance $3,300, Repairs $4,000, Insurance $4,200, and Advertising $2,500. he has been able to negotiate is 15%. Use this rate for cost of capital. students each trip. The service is expected to operate 30 weeks each year, and each 4. Lon has visited several financial institutions to discuss funding. The best interest rate 5. Lon expects each van to make ten round trips weekly and carry an average of six student will be charged $12.00 for a round-trip ticket. Instructions (a) Determine the annual (1) net income and (2) net annual cash flows for the comm (b) Compute (1) the cash payback period and (2) the annual rate of return. (Round to (c) Compute the net present value of the commuter service. (Round to the nearest dol service. decimals.) (d)What should Lon conclude from these computations

Answer & Explanation Solved by verified expert

See Answer