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EZ Rentals can purchase a van that costs $24,000. The van has an expected useful life of 5 years and no salvage value. EZ expects
EZ Rentals can purchase a van that costs $24,000. The van has an expected useful life of 5 years and no salvage value. EZ expects cash revenue from leasing the van to be $12,000 per year. Alternatively, EZ can purchase a car that costs $16,000. EZ expects cash revenue from leasing the car to be $10,000 per year over a 3-year useful life. Ignore income taxes. Required a. Determine the payback period for the van. b. Determine the payback period for the car. c. Indicate which vehicle is the better alternative if payback is used as the sole investment criteria. d. Describe the possible shortcomings of using payback as the investment criteria. e. Determine the unadjusted rate of return for both alternatives
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