b. The cash payback period. years 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 Less amount to be invested Net present value
b. The cash payback period. years 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 Less amount to be invested Net present value
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Compute the following:
Transcribed Image Text:Average Rate of Return, Cash Payback Period, Net Present Value Method
Bi-Coastal Railroad Inc. is considering acquiring equipment at a cost of $124,000. The equipment has an estimated life of 10 years and no residual value. It is expected to
provide yearly net cash flows of $31,000. 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
0.943
0.909
0.893
0.870
0.833
2
1.833
1.736
1.690
1.626
1.528
2.673
2.487
2.402
2.283
2.106
4
3.465
3.170
3.037
2.855
2.589
5
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
Compute the following:
а.
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
Transcribed Image Text:b. The cash payback period.
years
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
Less amount to be invested
Net present value
$4
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