Walker Shuttle Service, Inc , is considering whether to purchase an additional shuttle van The van would cost $36,000 and have a zero salvage value It would enable the company to increase net income by $5,400 per year The manufacturer estimates the vans effective life as five years Required a Deter...

a Increase net income 5400 Cost 36000 Average c ...

Walker Shuttle Service, Inc., is considering whether to purchase an additional shuttle van. The van would cost

Question:

Walker Shuttle Service, Inc., is considering whether to purchase an additional shuttle van. The van would cost $36,000 and have a zero . It would enable the company to increase net income by $5,400 per year. The manufacturer estimates the van’s effective life as five years.

Required
a. Determine the unadjusted rate of return based on the average cost of the investment.
b. What is the shortcoming of using the unadjusted rate of return to evaluate investment opportunities?

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...