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Lon Timur is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of t(b) Compute (1) the cash payback period and (2) the annual rate of return. (Round answers to 2 decimal places, e.g. 10.50.) Cpls show work! thank you

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Answer #1

Solution a:

Computation of annual income - Commuter service
Particulars Amount
Sales Revenue (5*10*30*6*$12) $108,000
Cost:
Gasoline $15,800
Maintenance $3,200
Repairs $3,700
Insurance $4,400
Advertising $2,800
Payroll expense $47,400
Depreciation ($76,136/3) $25,379
Net Annual Income $5,321
Computation of Cash Flows - Commuter service
Particulars Amount
Net Annual Income $5,321
Add: Depreciation $25,379
Annual cash flows $30,700

Solution b:

Cash payback period = Initial investment / Annual cash inflows = $76,136 / $30,700 = 2.48 years

Annual rate of return = Average annual income / Average investment

Average investment = (Cost + Salvage value) / 2 = $76,136/2 = $38,068

Annual rate of return = $5,321 / $38,068 = 13.98%

Solution c:

Computation of NPV - Commuter service
Particulars Amount Period PV Factor Present Value
Cash Outflows:
Cost of Investment $76,136.00 0 1 $76,136
Present Value of Cash Outflows (A) $76,136
Cash Inflows:
Annual cash inflows $30,700.00 1-3 2.28323 $70,095
Present Value of Cash Inflows (B) $70,095
Net Present Value (B-A) -$6,041
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