Edward Lewis is an accounting major at a midwestern state university located approximately 60 miles from a major city. Many of thestudents attending the university are from the metropolitan area and visit their homes regularly on the weekends. Edward, anentrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believesthat a weekend commuting service could be organized and run profitably from several suburban and downtown shopping malllocations. Edward has gathered the following investment information.Five used vans would cost a total of $76,194 to purchase and would have a 3-year useful life with negligible salvage value.Edward plans to use straight-line depreciation.1.2.Ten drivers would have to be employed at a total payroll expense of $47,400.Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $16,100,Maintenance $3,200, Repairs $4,100, Insurance $3,800, and Advertising $2,800.3.Edward has visited several financial institutions to discuss funding. The best interest rate he has been able to negotiate is15%. Use this rate for cost of capital.4.Edward expects each van to make 10 round trips weekly and carry an average of 6 students each trip. The service isexpected to operate 30 weeks each year, and each student will be charged $12 for a round-trip ticket.5. Compute (1) the cash payback period and (2) the annual rate of return. (Round answers to 2 decimal places, e.g. 10.50.)Cash payback periodyearsAnnual rate of return

The cashback period refers to the time frame it takes to recover the cost of an asset or investment.

ersity are from the metropolitan area and visit their hc zes that few good commuting alternatives are availabl service could be organized and run profitably from sev ered the following investment information. Id cost a total of $76,194 to purchase and would have: e straight-line depreciation. nave to be employed at a total payroll expense of $47,4 of-pocket expenses associated with running the commu

ersity are from the metropolitan area and visit their hc zes that few good commuting alternatives are availabl service could be organized and run profitably from sev ered the following investment information. Id cost a total of $76,194 to purchase and would have: e straight-line depreciation. nave to be employed at a total payroll expense of $47,4 of-pocket expenses associated with running the commu

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 17E

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