Victorian Charity Services, a not-for-profit institution not subject to income taxes, is considering the purchase of a new vehicle costing $42,000 to achieve cash savings of $10,000 per year in operating costs. The estimated useful life is 7 years, with no residual value. The minimum expected return is 14%.

Required

a. What is the net present value of this investment? Use either the present value tables or spreadsheet formulas to calculate present values (Round answer to 0 decimal places. Use the tables to determine the PV factor.)

Net Present Value

$

b. What is the payback period for this investment? (Round answer to 1 decimal places. Assuming straight-line depreciation.)

Payback Period

years

c. What is the accrual accounting rate of return based on the initial investment? (Round answer to 1 decimal places. Assuming straight-line depreciation.)

Accounting Rate of Return

%