Question: St. Lawrence Bus Lines is offered a contract for busing schoolchildren that will produce an annual profit of $70,000 for seven years. To fulfill the

St. Lawrence Bus Lines is offered a contract for busing schoolchildren that will produce an annual profit of $70,000 for seven years. To fulfill the contract, St. Lawrence would have to buy three buses at a total cost of $333,000. At the end of the contract, the resale value of the buses is estimated to be $80,000. Should St. Lawrence Bus Lines sign the contract if its cost of capital is:
a. 12%?
b. 14%?
c. 16%?

Step by Step Solution

★★★★★

3.31 Rating (169 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

a 3194630 361873 333000 22651 Since the investment has a positive NPV St ... View full answer

blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Document Format (1 attachment)

Word file Icon

711-B-A-C-I (1847).docx

120 KBs Word File

Students Have Also Explored These Related Accounting Questions!

Q:

Determine the IRR on the school bus contract in Problem 1 of Exercise 16.2. At which of the three costs of capital would the contract be financially acceptable? In Problem 1 St. Lawrence Bus Lines is...

Q:

Ms. Crabtree is given a one-year, nontenured contract to teach English at Haddock State University, a public institution. After her contract year ends, she is not offered a contract for the next year...

Q:

A business is evaluating two mutually exclusive projects. Project A requires an immediate investment of $6000, plus another $8000 in three years. It would produce a profit of $6000 in the second...

Q:

St. Lawrence Bus Lines is offered a contract for busing schoolchildren that will produce an annual profit of $70,000 for seven years. To fulfill the contract, St. Lawrence would have to buy three...

Q:

Q2. St Lawrence Bus Lines is offered a contract for busing schoolchildren that will produce an annual profit of $70,000 for 7 years. To fulfill the contract, St Lawrence Bus Lines would have to buy...

Q:

Determine the IRR on the school bus contract in Problem 1 of Exercise 16.2. At which of the three costs of capital would the contract be financially acceptable? In Problem 1 St. Lawrence Bus Lines is...

Q:

Q2. St Lawrence Bus Lines is offered a contract for busing schoolchildren that will produce an annual profit of $70,000 for 7 years. To fulfill the contract, St Lawrence Bus Lines would have to buy...

Q:

Q2. St Lawrence Bus Lines is offered a contract for busing schoolchildren that will produce an annual profit of $70,000 for 7 years. To fulfill the contract, St Lawrence Bus Lines would have to buy...

Q:

Q2. St Lawrence Bus Lines is offered a contract for busing schoolchildren that will produce an annual profit of $70,000 for 7 years. To fulfill the contract, St Lawrence Bus Lines would have to buy...

Q:

Q2. St Lawrence Bus Lines is offered a contract for busing schoolchildren that will produce an annual profit of $70,000 for 7 years. To fulfill the contract, St Lawrence Bus Lines would have to buy...

Q:

Q 4. A particle moves along the surface of a Paraboloid x? + y? = z; the only force acting on it is gravity, use rectangular components and find the Lagrangian and the equations of motion.

Q:

How does one petition the Supreme Court to hear ones tax case?

Q:

If the intrinaic value of a stock is greater thas its market value, which one of the following is a reasonable conclusion? A The stock has a low level of risk. B The shock effers a high tiviseng...

Q:

Your project is halfway through, and you've just realized you're running over budget. Your Earned Value is $500,000, your Actual Cost is $550,000, and your Planned Value is $450,000. What is your...

Q:

Various Changes in PrincipleInventory Methods Below is the net income of Benchley Instrument Co., a private corporation, computed under the three inventory methods using a periodic system. FIFO...

Q:

Error Correction Entries the first audit of the books of Fennimore Company was made for the year ended December 31, 2010. In examining the books, the auditor found that certain items had been...

Q:

Error Analysis and Correcting Entry You have been engaged to review the financial statements of Longfellow Corporation. In the course of your examination you conclude that the bookkeeper hired during...

Q:

You plan to purchase a $150,000 house using a 30-year mortgage obtained from your local credit union. The mortgage rate offered to you is 5.75 percent. You will make a down payment of 20 percent of...

Q:

To calculate the number of years until maturity, assume that it is currently May 2010. Rate Maturity Mo/Yr Bid Asked Chg Ask Yld ?? 16-May 106:14:00 106:18:00 2 4.98 6.5 24-May 108:13:00 108:15:00 4...

Q:

please please help Suppose you borrowed $31,000 at a rate of 10,0% and must repay it in 5 equal installments at the end of each of the next 5 years. How much interest would you have to pay in the...