Average rate of return, cash payback period, net present value method for a service company The St. Louis to Seattle Railroad is considering acquiring equipment at a cost of $140,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $28,000. The company's minimum desired rate of return for net present value analysis is 10%. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.833 2 1.528 3 4 5 6 7 8 9 10 Compute the following: a. The average rate of return, giving effect to straight-line depreciation on the investment. If required, round your answer to one decimal place. % 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 0.909 1.736 2.487 3.170 Amount to be invested 3.791 4.355 4.868 Net present value 5.335 b. The cash payback period. 5 years 5.759 6.145 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 Present value of annual net cash flows 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 c. The net present value. Use the above table of the present value of an annuity of $1. Round to the nearest dollar. If required, use a minus sign to indicate negative net present value for current grading purpose. 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192
Average rate of return, cash payback period, net present value method for a service company The St. Louis to Seattle Railroad is considering acquiring equipment at a cost of $140,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $28,000. The company's minimum desired rate of return for net present value analysis is 10%. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.833 2 1.528 3 4 5 6 7 8 9 10 Compute the following: a. The average rate of return, giving effect to straight-line depreciation on the investment. If required, round your answer to one decimal place. % 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 0.909 1.736 2.487 3.170 Amount to be invested 3.791 4.355 4.868 Net present value 5.335 b. The cash payback period. 5 years 5.759 6.145 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 Present value of annual net cash flows 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 c. The net present value. Use the above table of the present value of an annuity of $1. Round to the nearest dollar. If required, use a minus sign to indicate negative net present value for current grading purpose. 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Average rate of return, cash payback period, net present value method for a service company
The St. Louis to Seattle Railroad is considering acquiring equipment at a cost of $140,000. The equipment has an estimated life of 10 years and no residua
value. It is expected to provide yearly net cash flows of $28,000. The company's minimum desired rate of return for net present value analysis is 10%.
Present Value of an Annuity of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
2
3
4
5
6
0.943
1.833
2.673
3.465
4.212
4.917
7
8
9
10
Compute the following:
5.582
6.210
6.802
7.360
0.909
1.736
2.487
3.170
3.791
4.355
Amount to be invested
4.868
5.335
5.759
6.145
b. The cash payback period.
5 years
Net present value
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
Present value of annual net cash flows
0.870
1.626
2.283
2.855
3.353
3.785
4.160
4.487
4.772
5.019
0.833
a. The average rate of return, giving effect to straight-line depreciation on the investment. If required, round your answer to one decimal place.
%
1.528
$
2.106
c. The net present value. Use the above table of the present value of an annuity of $1. Round to the nearest dollar. If required, use a minus sign to
indicate negative net present value for current grading purpose.
2.589
2.991
3.326
3.605
3.837
4.031
4.192
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