Gary King is an accounting major at a midwestern state university located approximately 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. Gary, 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. Gary has gathered the following investment information.
Five used vans would cost a total of $ to purchase and would have a year useful life with negligible salvage value. Gary plans to use straightline depreciation.
Ten drivers would have to be employed at a total payroll expense of $
Other annual outofpocket expenses associated with running the commuter service would include Gasoline $ Maintenance $ Repairs $ Insurance $ and Advertising $
Gary has visited several financial institutions to discuss funding. The best interest rate he has been able to negotiate is Use this rate for cost of capital.
Gary expects each van to make round trips weekly and carry an average of students each trip. The service is expected to operate weeks each year, and each student will be charged $ for a roundtrip ticket.
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a
b
Your answer i incorrect.
Compute the net present value of the commuter service. Round answer to decimal places, eg If the net present value is negative, use either a negative sign preceding the number eg or porentheses eg For calculation purposes, use decimal places as displayed in the factor toble provided.
Net present value
