Ted’s Taxi Company (TTC) is considering the purchase of four new taxicabs. Various information about the proposed investment follows:

Required:

Help TTC evaluate this project by calculating each of the following:

1. Accounting rate of return.

2. Payback period.

3. Net present value (NPV).

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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Initial investment (for 4 vehicles) Useful life Salvage value Annual net income generated TTC's cost of capital $220,000 5 years $ 20,000 $ 27,000 9%