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 $3,600,000. The equipment has an estimated life of 8 years and no residual value. It is expected to provide yearly net cash flows of $750,000. The company’s minimum
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 $3,600,000. The equipment has an estimated life of 8 years and no residual value. It is expected to provide yearly net cash flows of $750,000. The company’s minimum
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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The St. Louis to Seattle Railroad is considering acquiring equipment at a cost of $3,600,000. The equipment has an estimated life of 8 years and no residual value. It is expected to provide yearly net
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 $3,600,000. The equipment has an estimated life of 8 years and no residual value. It is expected to provide yearly net cash flows of $750,000. 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
0.893 0.870
2
3
4
5
6
7
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
3.791
4.355
4.868
5.335
5.759
6.145
8
9
10
Compute the following:
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
1.626
2.283
2.855
3.353
3.785
4.160
4.487
4.772
5.019
0.833
1.528
2.106
2.589
2.991
$
$
3.326
3.605
3.837
4.031
4.192
a. The average rate of return, giving effect to straight-line depreciation on the investment. Round to one decimal place.
%
b. The cash payback period. Round to one decimal place.
4.8 years
c. The net present value. Use the above table of the present value of an annuity of $1. Round to the nearest dollar.
Present value of annual net cash flows
Amount to be invested
Net present value
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