The Best Cab Company TBCC is considering the purchase of
The Best Cab Company (TBCC) is considering the purchase of four new taxicabs. Various information about the proposed investment follows:
Initial investment (for 4 vehicles) .... $200,000
Useful life ............. 5 years
Salvage value ........... $ 12,000
Annual net income generated ...... $ 20,000
TBCC’s cost of capital ........ 9%

Required:
Help TBCC evaluate this project by calculating each of the following:
1. Accounting rate of return.
2. Payback period.
3. Net present value.
4. Recalculate the NPV assuming the cost of capital is 15 percent.
5. Based on your calculations of NPV, what would you estimate the project’s internal rate of return to be?

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