David Davis 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. David, 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. David has gathered the following investment information. 1. Five used vans would cost a total of $74,088 to purchase and would have a 3 -year useful life with negligible salvage value. David plans to use straight-line depreciation. 2. Ten drivers would have to be employed at a total payroll expense of $48,000. 3. Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $16,100, Maintenance $3,400, Repairs $4,000, Insurance $4,600, and Advertising $2,500. 4. David 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. David 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. TABLE 1 Future Value of 1 \begin{tabular}{|rcccccccccc} \hline (n)Periods & 4% & 5% & 6% & 7% & 8% & 9% & 10% & 11% & 12% & 15% \\ \hline 0 & 1.00000 & 1.00000 & 1.00000 & 1.00000 & 1.00000 & 1.00000 & 1.00000 & 1.00000 & 1.00000 & 1.00000 \\ \hline 1 & 1.04000 & 1.05000 & 1.06000 & 1.07000 & 1.08000 & 1.09000 & 1.10000 & 1.11000 & 1.12000 & 1.15000 \\ \hline 2 & 1.08160 & 1.10250 & 1.12360 & 1.14490 & 1.16640 & 1.18810 & 1.21000 & 1.23210 & 1.25440 & 1.32250 \\ \hline 3 & 1.12486 & 1.15763 & 1.19102 & 1.22504 & 1.25971 & 1.29503 & 1.33100 & 1.36763 & 1.40493 & 1.52088 \\ \hline 4 & 1.16986 & 1.21551 & 1.26248 & 1.31080 & 1.36049 & 1.41158 & 1.46410 & 1.51807 & 1.57352 & 1.74901 \\ \hline 5 & 1.21665 & 1.27628 & 1.33823 & 1.40255 & 1.46933 & 1.53862 & 1.61051 & 1.68506 & 1.76234 & 2.01136 \\ \hline \end{tabular} \begin{tabular}{rllllllllll} \hline 6 & 1.26532 & 1.34010 & 1.41852 & 1.50073 & 1.58687 & 1.67710 & 1.77156 & 1.87041 & 1.97382 & 2.31306 \\ \hline 7 & 1.31593 & 1.40710 & 1.50363 & 1.60578 & 1.71382 & 1.82804 & 1.94872 & 2.07616 & 2.21068 & 2.66002 \\ \hline 8 & 1.36857 & 1.47746 & 1.59385 & 1.71819 & 1.85093 & 1.99256 & 2.14359 & 2.30454 & 2.47596 & 3.05902 \\ \hline 9 & 1.42331 & 1.55133 & 1.68948 & 1.83846 & 1.99900 & 2.17189 & 2.35795 & 2.55803 & 2.77308 & 3.51788 \\ \hline 10 & 1.48024 & 1.62889 & 1.79085 & 1.96715 & 2.15892 & 2.36736 & 2.59374 & 2.83942 & 3.10585 & 4.04556 \\ \hline \end{tabular} \begin{tabular}{lllllllllll} \hline 11 & 1.53945 & 1.71034 & 1.89830 & 2.10485 & 2.33164 & 2.58043 & 2.85312 & 3.15176 & 3.47855 & 4.65239 \\ \hline 12 & 1.60103 & 1.79586 & 2.01220 & 2.25219 & 2.51817 & 2.81267 & 3.13843 & 3.49845 & 3.89598 & 5.35025 \\ \hline 13 & 1.66507 & 1.88565 & 2.13293 & 2.40985 & 2.71962 & 3.06581 & 3.45227 & 3.88328 & 4.36349 & 6.15279 \\ \hline 14 & 1.73168 & 1.97993 & 2.26090 & 2.57853 & 2.93719 & 3.39173 & 3.79750 & 4.31044 & 4.88711 & 7.07571 \\ \hline 15 & 1.80094 & 2.07893 & 2.39656 & 2.75903 & 3.17217 & 3.64248 & 4.17725 & 4.78459 & 5.47357 & 8.13706 \\ \hline & & & & & & & & & & \\ \hline 16 & 1.87298 & 2.18287 & 254035 & 2.95216 & 3.42594 & 3.97031 & 4.59497 & 5.31089 & 6.13039 & 9.35762 \\ \hline 17 & 1.94790 & 2.29202 & 2.69277 & 3.15882 & 3.70002 & 4.32763 & 5.05447 & 5.89509 & 6.86604 & 10.76126 \\ \hline 18 & 2.02582 & 2.40662 & 2.85434 & 3.37993 & 3.99602 & 4.71712 & 5.55992 & 6.54355 & 7.68997 & 12.37545 \\ \hline 19 & 2.10685 & 2.52695 & 3.02560 & 3.61653 & 4.31570 & 5.14166 & 6.11591 & 7.26334 & 8.61276 & 14.23177 \\ \hline 20 & 2.19112 & 2.65330 & 3.20714 & 3.86968 & 4.66096 & 5.60441 & 6.72750 & 8.06231 & 9.64629 & 16.36654 \\ \hline \end{tabular} E 2 Future Value of an Annuity of 1 Present Value of 1 =. Determine the annual (1) net income and (2) net annual cash flows for the commuter service. (Round onswers to 0 decimal places, e.g. 125.) Net income Net annual cash flows Attempts: 0 of 2 used
