PROBLEM 26-2B THIS is your "Bob - Homework"... Prob 26-2B. This problem is NOT in your textbook (1) Annual (2) Annual Net Income Cash Flow Required: below this problem (next page) are the working papers for you to complete and then submit to the instructor by the due date Sales Expenses: Optional: Below the Prob B "working papers" (scroll 3 pages) are answers to similar, Prob A. I needed, refer to the Prob A to help you complete your problem B assignment. Total Expenses Net Income Cash Inflow (b) (1) Cash Payback Period = Annual Rate of Return = P26-2B Ben Paul is an accounting major at a western university located approximately 60 miles from a major city Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Ben an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Ben has gathered the following investment information 1. Five used vans would cost a total of $90,000 to purchase and would have a 3-year useful le with negligible salvage value. Ben plans to use straight-line depreciation 2. Ten drivers would have to be employed at a total payroll expense of $43,000 3. Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $26,000, Maintenance $4,000, Repairs $5,300, Insurance 54,500, Advertising $2 200 4. Ben desires to eam a retum of 15% on his investment 5. Ben expects each van to make ten round trips weekly and carry an average of six students each the service is expected to operate 52 weeks each year, and each student will be charged $15 for a round-trip ticket (c) Present Value of Annual Cash Flows Capital Investment Net Present Value (d) Computations show that commuter service is a good investment for because: Give AT LEAST 3 reasons! Instructions (a) Determine the annual: (1) net income and (2) net annual cash flows for the commuter service, (b) Compute the (1) cash payback period and (2) annual rate of return. (Round to two decimals.) (c) Compute the net present value of the commuter service. (Round to nearest dollar.) (d) What should Ben conclude from these computations? Net Cash (b) P26-2B Ben Paul is an accounting major at a western university located approximately 60 miles from a major city. Many of the students attending the university are from the metropolitan area and visit their homes regularly on the weekends. Ben, an entrepreneur at heart, realizes that few good commuting alternatives are available for students doing weekend travel. He believes that a weekend commuting service could be organized and run profitably from several suburban and downtown shopping mall locations. Ben has gathered the following investment information 1. Five used vans would cost a total of $90,000 to purchase and would have a 3-year useful life with negligible salvage value. Ben plans to use straight-line depreciation 2. Ten drivers would have to be employed at a total payroll expense of $43,000. 3. Other annual out-of-pocket expenses associated with running the commuter service would include Gasoline $26,000, Maintenance $4,000, Repairs $5,300, Insurance $4,500, Advertising $2,200 4. Ben desires to earn a return of 15% on his investment. 5. Ben expects each van to make ten round trips weekly and carry an average of six students each trip. The service is expected to operate 32 weeks each year, and each student will be charged $15 for a round-trip ticket. (d) Con Giv Instructions (a) Determine the annual: (1) net income and (2) net annual cash flows for the commuter service. (b) Compute the: (1) cash payback period and (2) annual rate of return. (Round to two decimals.) (c) Compute the net present value of the commuter service. (Round to nearest dollar.) (d) What should Ben conclude from these computations? (1) Annual (2) Annual Net Income Cash Flow Sales Expenses: Total Expenses Net Income Cash Inflow (b) (1) Cash Payback period = Annual Rate of Return = (c) Present Value of Annual Cash Flows Capital Investment Net Present Value (d) Computations show that commuter service is a good investment for because: Give AT LEAST 3 reasons