Vienna Snowmobile Company is considering whether to invest in a particular new snowmobile model. The model is

Question:

Vienna Snowmobile Company is considering whether to invest in a particular new snowmobile model. The model is top-of-the-line equipment for which Vienna expects high demand during the first year it is available for rent. However, as the snowmobile ages, it will become less desirable and its rental revenues are expected to decline. The expected cash inflows and outflows follow:
Year Nature of Cash Flow Cash Inflow Cash Outflow
2019................... Purchase price..................... - ....................$70,000
2019......................... Revenue................ $40,000.......................... -
2020........................ Revenue.................. 30,000.......................... -
2021........................ Revenue.................. 27,500.......................... -
2021................. Major overhaul...................... - .......................10,000
2022........................ Revenue................... 15,000.......................... -
2023........................ Revenue................... 10,000.......................... -
2023.................. ..................... 8,000 .........................-
Required
a. Determine the using the accumulated cash flows approach.
b. Determine the using the average cash flows approach.
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