Determine the annual (1) net income and (2) net annual cash flows for the commut

Question

Determine the annual (1) net income and (2) net annual cash flows for the commuter services. Compute (1) the cash payback period and (2) the annual rate of return. (Round answers to 2 decimal places) a midwesterm state university located approximately 60 miles from a major city. Many of the students attending the university are Lon Timur is an accounting major at from the metropolitan area and students doing weekend travel. He believes that a weekend commuting service could be org homes regularly on the weekends. Lon, an entrepreneur at heart, realizes that few good commuting alternatives are available for nized and run profitably from several suburban and downtown shopping mal locations. Lon has gathered the following investment information five used vans would cost a total of $75,800 to purchase and would have a 3-year useful life with negligible salvage value. Lon plans to depreciation. Ten drivers would have to be employed at a total payroll expense of $47,992 Insurance $4,198, Advertising $2,500. Lon expects each van to make 2. expense asociated with rug the cmmuter service wouild inciude Gasoline $16,007, Maintenance s3,298, Repairs $4,006 utions to discuss funding. The best interest rate he has been able to negotiate is 15% Use this rate for cost of capital l instit ten round trips weekly and carry an average of six students each trip. The service is expected to operate 30 weeks each year, and each student will be charged $12.03 for a round-trip ticket.

Explanation / Answer

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1 Revenue(10*6*30*12.03*5) $ 108,270 Less: Cost Driver's salary $        47,992 Gasoline $        16,007 Maintainance $          3,298 Repairs $          4,006 Insurance $          4,198 Advertising $          2,500 Depreciation(75800/3) $        25,267 Total Cost $ 103,268 Net Income $      5,002

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