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Ben Paul 90000

Price: \$2.50

Ben Paul is an accounting major at a western 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. Ben, 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. Ben has
gathered the following investment information.

1. Five used vans would cost a total of \$90,000 to purchase and would have a 3-year useful
life with negligible salvage value. Ben plans to use straight-line depreciation.

2. Ten drivers would have to be employed at a total payroll expense of \$43,000.

3. Other annual out-of-pocket expenses associated with running the commuter service
would include Gasoline \$26,000, Maintenance \$4,000, Repairs \$5,300, Insurance

4. Ben desires to earn a return of 15% on his investment.

5. Ben expects each van to make ten round trips weekly and carry an average of six students
each trip. The service is expected to operate 32 weeks each year, and each student
will be charged \$15 for a round-trip ticket.

Instructions
(a) Determine the annual (1) net income and (2) net annual cash flows for the commuter
service.
(b) Compute (1) the cash payback period and (2) the annual rate of return. (Round to two
decimals.)
(c) Compute the net present value of the commuter service. (Round to the nearest dollar.)