Exercise 3 Lon Timur 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 that city and visit their homes regularly on the weekend. Lon, an entrepeneur, 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 opping mall locations. Lon has gathered the following investment information: a. Five used vans would cost a total of $75,000 to purchase and would have a 5-year useful life with no salvage value. Lon plans to use straight-line depreciation. Lon would like to recover the intitial cash outlay within 2 years. b. Ten drivers would have to be employed at a total payroll cost of $48,000 annually. c. Other annual out-of-pocket costs associated with running the commuter service would include Gasoline $16,000, Maintenance $3,300, Repairs $4,000, Insurance $4,200, and Advertising $2,500. d. Lon 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 capi:1. Lon would like to earn at least an 18% rate of return. e. Lon expects each van to make ten round trips WEEKLY and carry an average of six students each round trip. The service is expected to operate 30 weeks each year, and each student will be charged $12 for a round-trip ticket. Instructions (a) Compute the payback period and determine if the project is acceptable. (6) Compute the accounting rate of return and determine if the project is acceptable. (c) Compute the net present value and determine if the project is acceptable. (d) Compute the internal rate of return and determine if the project is acceptable