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 $98,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $49,000. The company's minimum desired rate of return for net present value analysis is 12%. 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 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.353 2.991 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 5 % 6 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. b. The cash payback period. 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. Present value of annual net cash flows $ Amount to be invested Net present value $
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 $98,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $49,000. The company's minimum desired rate of return for net present value analysis is 12%. 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 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.353 2.991 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 5 % 6 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. b. The cash payback period. 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. Present value of annual net cash flows $ Amount to be invested Net present value $
Chapter1: Financial Statements And Business Decisions
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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 $98,000. The equipment has an
estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $49,000. The
company's minimum desired rate of return for net present value analysis is 12%.
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
2
1.833 1.736 1.690 1.626 1.528
3
2.673 2.487 2.402 2.283 2.106
4
3.465 3.170 3.037 2.855 2.589
4.212 3.791 3.605 3.353 2.991
4.917 4.355 4.111 3.785 3.326
%
5
6
7
5.582 4.868 4.564 4.160 3.605
8
6.210 5.335 4.968 4.487 3.837
9
6.802 5.759 5.328 4.772 4.031
10 7.360 6.145 5.650 5.019 4.192
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.
b. The cash payback period.
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.
Present value of annual net cash flows $
Amount to be invested
Net present value
$
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