Thorne Transit, Inc. has decided to inaugurate express bus service between its headquarters city and a nearby suburb (one-way fare of \(\$ .50\) ) and is considering the purchase of either 32- or 52-passenger buses, on which pertinent estimates are as follows:

During the daily rush-hour period (which totals four hours), all buses would be in service and are expected to operate at full capacity (state law prohibits standees) in both directions of the route, each bus covering the route 12 times ( 6 round trips) during that period. During the remainder ofthe 16 hour daily service period, 500 passengers would be carried and Thorne would operate four buses on the route. Part-time drivers (paid at the regular rate) would be employed to drive during the rush hours. A bus traveling the route all day would go 480 miles and one traveling only during rush hours would go 120 miles a day during the 260 -day year.
{Required.}

(a) Prepare a schedule showing the computation of estimated annual revenue of the new route for both alternatives.

(b) Prepare a schedule showing the computation of estimated annual drivers' wages for both alternatives.

(c) Prepare a schedule showing the computation of estimated annual cost of gasoline for both alternatives.

(d) Assuming that a minimum rate of return of 12 percent before income taxes is desired and that all annual cash flows occur at the end of the year, prepare a schedule showing the computation of the present values of net cash flows for the eight year period; include the cost of buses and the proceeds from their disposition under both alternatives, but disregard the effect of income taxes. Round all calculations to the nearest dollar.

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32-Passenger Bus 52-Passenger Bus Number of cach to be purchased....... Useful life........... Purchase price of each bus (paid on delivery). Mileage per gallon. Salvage value per bus... Drivers' hourly wage... Price per gallon of gasoline. Other annual cash expenses.. 6 8 years 8 years .$80,000 $110,000 10 7.5 7,000 4.20 .40 .$6,000 $ 3.50 $ .40 $ 4,000 $ 3,000