Sheridan 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. Sheridan, 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.

Sheridan has gathered the following investment information.

Five used vans would cost a total of $$73,455$ to purchase and would have a $3-$year useful life with negligible salvage value.

Sheridan plans to use straight$-$line depreciation.

Ten drivers would have to be employed at a total payroll expense of $$49,000.$

Other annual out$-$of$-$pocket expenses associated with running the commuter service would include Gasoline $$15,900,$

Maintenance $$3,600,$ Repairs $$3,800,$ Insurance $$3,900,$ and Advertising $$2,300.$

Sheridan 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.

Sheridan 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.

Click here to view the factor table.

$($a$)$

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

Net annual cash flows

$

$($b$)$

Compute $(1)$ the cash payback period and $(2)$ the annual rate of return. $($Round answers to $2$ decimal places, e$.$g$.10\mathrm{.}50.)$

Cash payback period

years

Annual rate of return

$\%$

$($c$)$

Compute the net present value of the commuter service. $($Round answer to $0$ 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