haCaY TNAT he has becn able 'o negotiate is 15% Use thin ,ale for cost of co S Lon expects each van to make ten round trips weekly and cay students each inip. The service is expected to operate 30 weeks pital an average each The eenop Instruetionm 4 Lon has visited several student will be charged $12.00 for a round-trip ticket Iustruerions (a) Determine the annual () net income and 2) net annual cash flows Mick. hend for the comm (a) () s5000 )() 25 years tional ben worth in service (b) Compute (1) the cash payback period and b) Compute (l) the cash payback period and (2) tlhe annual rate of return. (e decimals.) e) Compute the net present value of the commuter service, (Round to the neares (d) .. arest de P12-5A C what should Lon conclude from these computations? Compute net present vaue. P12-3A Brooks Clinic is considering investing in new heart-monitoring equipmen profitability indey, and internal rate of return hes coac has two options, Option A would have an initial lower cost but would require a signif expenditure for rebuilding after 4 years. Option B would require no rebuilding expe ture, but its maintenance costs would be higher. Since the Option B machine is of higher quality, it is expected to have a salvage value at the end of its useful life. The lowing estimates were made of the cash flows. The companys cost of capital is 8% LO 2, 3, 4), AN Initial cost Annual cash inflows Annual cash outflows Cost to rebuild (end of year 4) Salvage value Estimated useful life Option AOptionB $227,000 $80,000 $31,000 $0 $8,000 7 years $160,000 $71,000 $30,000 $50,000 $0 years I1 7 Instructions (a) Compute the (1 ) net present value, (2) profitability index, and (3) internal rate of return (Hint: To solve for internal rate of return, experiment with alternative PV A $16,709 discount rates to arrive at a net present value of zero.) (b) Which option should be accepted? P12-4A Jane's Auto Care is considering the purchase of a new to doesn't currently have a tow truck, and the $60,000 price tag fo represent a major expenditure. Jane Austen, owner of the ga the estimates shown below in trying to determine whether purchased intangible