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*Problem 24-2A /1 Your answer is partially correct. again. Lon Timur is an accounting major at a midwestern state university located approximately 60 miles from
*Problem 24-2A /1 Your answer is partially correct. again. 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 the metropolitan area and visit their homes regularly on the weekends Lon, 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. Lon has gathered the following investment information. 1 Five used vans would cost a total of S75,000 to purchase and would have a 3-year useful life with negligible salvage value. Lon plans to use straight-line depreciation. Ten drivers would have to be employed at a total payroll expense of $47,990 Maintenance $3,310, Repairs $4,010, Insurance $4,190, and Advertising s2,510 is 15%. Use this rate for cost of capital expected to operate 30 weeks each year, and each student will be charged S11.95 for a round-trip ticket. 2. 3. Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $16,000 4. Lon has visited several financial institutions to discuiss funding. The best interest rate he has been able to negotiate 5. Lon expects each van to make ten round trips weekly and carry an average of six students each trip. The service is Click here to view PV table Determine the annual (1) net income and (2) net annual cash flows for the commuter service. (Round answers to 0 decimal places, e.g. 125.) Net income Not annual cash lo9S40 Compute (1) the cash payback period and (2) the annual rate of retum. (Round answers to 2 decimal places, e.g. 10.50.) Cash payback period Annual rate of retur 2.05 years Compute the net present value of the commuter service. (Round answer to o decimal places, e.g. 125. If the net present value is negative, use either a negative sign preceding the number eg -45 or parentheses eg (45). For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Net present value T7,55
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