Average Rate of Return, Cash Payback Period, Net Present Value Method Cross Country Railroad Inc. is considering acquiring equipment at a cost of $138,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $69,000. The company's minimum desired rate of return for ne present value analysis is 15%. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 1.833 1.736 1.690 1.626 1.528 2.673 2.487 2.402 2.283 2.106 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.353 2.991 4.917 4.355 3.785 3.326 4.111 4.564 4.160 5.582 4.868 3.605 6.210 5.335 4.968 4.487 3.837 6.802 5.759 5.328 4.772 4.031 7.360 6.145 5.650 5.019 4.192 2 3 4 5 6 7 8 9 10 Compute the following: a. The average rate of return, assuming the annual earnings are equal to the net cash flows less the annual depreciation expense on the equipment. If required, round your answer to one decimal place. % b. The cash payback period. years c. The net present value. Use the above table of the present value of an annulty of $1. Round to the nearest dollar. Present value of annual net cash flows Less amount to be invested Net present value 000
Average Rate of Return, Cash Payback Period, Net Present Value Method Cross Country Railroad Inc. is considering acquiring equipment at a cost of $138,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $69,000. The company's minimum desired rate of return for ne present value analysis is 15%. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 1.833 1.736 1.690 1.626 1.528 2.673 2.487 2.402 2.283 2.106 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.353 2.991 4.917 4.355 3.785 3.326 4.111 4.564 4.160 5.582 4.868 3.605 6.210 5.335 4.968 4.487 3.837 6.802 5.759 5.328 4.772 4.031 7.360 6.145 5.650 5.019 4.192 2 3 4 5 6 7 8 9 10 Compute the following: a. The average rate of return, assuming the annual earnings are equal to the net cash flows less the annual depreciation expense on the equipment. If required, round your answer to one decimal place. % b. The cash payback period. years c. The net present value. Use the above table of the present value of an annulty of $1. Round to the nearest dollar. Present value of annual net cash flows Less amount to be invested Net present value 000
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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chap. 26 q. 5
Transcribed Image Text:Average Rate of Return, Cash Payback Period, Net Present Value Method
Cross Country Rallroad Inc. is considering acquiring equipment at a cost of $138,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $69,000. The company's minimum desired rate of return for net
present value analysis is 15%.
Present Value of an Annuity of $1 at Compound Interest
Year
1
2
3
5
6
7
8
9
10
6%
10%
0.943
0.909
1.833 1.736
2.673
2.487
3.465
3.170
4.212
3.791
4.917 4.355
5.582
4.868
6.210
6.802
7.360
5.335
5.759
6.145
12%
b. The cash payback period.
years
0.893
0.870
1.690
1.626
2.402
2.283
3.037 2.855
3.605 3.353
4.111
4.564
15%
4.968
5.328
5.650
20%
4.160
4.487
0.833
1.528
2.106
2.589
2.991
3.785 3.326
3.605
3.837
4.772 4.031
5.019
4.192
Compute the following:
a. The average rate of return, assuming the annual earnings are equal to the net cash flows less the annual depreciation expense on the equipment. If required, round your answer to one decimal place.
%
c. The net present value. Use the above table of the present value of an annulty of $1. Round to the nearest dollar.
Present value of annual net cash flows
Less amount to be invested
Net present value
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