Average Rate of Return, Cash Payback Period, Net Present Value MethodBi-Coastal Railroad Inc. is considering acquiring equipment at a cost of $424,000. The equipment has an estimated life of 10 years and noresidual value. It is expected to provide yearly net cash flows of $53,000. The company's minimum desired rate of return for net presentvalue analysis is 10%.Present Value of an Annuity of $1 at Compound InterestYear6%10%12%15%20%0.9430.9090.8930.8700.8331.8331.6901.7361.6261.5282.6732.4872.4022.2832.1063.4653.1703.0372.8552.5893.7912.9914.2123.6053.3534.9174.3554.1113.7853.3265.5824.8684.5644.1603.6056.2105.3354.9684.4873.8374.0316.8025.7595.3284.7726.1455.650107.3605.0194.192Compute 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 theequipment. If required, round your answer to one decimal place. 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 theequipment. If required, round your answer to one decimal place.b. The cash payback period.yearsc. 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 minussign to indicate negative net present value" for current grading purpose.Present value of annual net cash flowsLess amount to be investedNet present value

Question
Asked Dec 6, 2019
34 views
Average Rate of Return, Cash Payback Period, Net Present Value Method
Bi-Coastal Railroad Inc. is considering acquiring equipment at a cost of $424,000. The equipment has an estimated life of 10 years and no
residual value. It is expected to provide yearly net cash flows of $53,000. 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%
0.943
0.909
0.893
0.870
0.833
1.833
1.690
1.736
1.626
1.528
2.673
2.487
2.402
2.283
2.106
3.465
3.170
3.037
2.855
2.589
3.791
2.991
4.212
3.605
3.353
4.917
4.355
4.111
3.785
3.326
5.582
4.868
4.564
4.160
3.605
6.210
5.335
4.968
4.487
3.837
4.031
6.802
5.759
5.328
4.772
6.145
5.650
10
7.360
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.
help_outline

Image Transcriptionclose

Average Rate of Return, Cash Payback Period, Net Present Value Method Bi-Coastal Railroad Inc. is considering acquiring equipment at a cost of $424,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $53,000. 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% 0.943 0.909 0.893 0.870 0.833 1.833 1.690 1.736 1.626 1.528 2.673 2.487 2.402 2.283 2.106 3.465 3.170 3.037 2.855 2.589 3.791 2.991 4.212 3.605 3.353 4.917 4.355 4.111 3.785 3.326 5.582 4.868 4.564 4.160 3.605 6.210 5.335 4.968 4.487 3.837 4.031 6.802 5.759 5.328 4.772 6.145 5.650 10 7.360 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.

fullscreen
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 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
help_outline

Image Transcriptionclose

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 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

fullscreen
check_circle

Expert Answer

star
star
star
star
star
1 Rating
Step 1

Net present value of a project is calculated by deducting the cost of project from the present value of cash inflows. A project is selected if it has positive net present value and vice-a-versa.

Payback period is the period of time in which the cost of project is covered from cash inflows of the project.

Step 2

a)

Cost of equipment: $424,000

Useful life of equipment: 10 years

Salvage value: $0

Depreciation expense per annum is calculated as follows:

help_outline

Image Transcriptionclose

cost – salvage value Depreciation useful life $424, 000 – $0 10 $424,000 10 = $42, 400

fullscreen
Step 3

Annual earnings: net cash flows – annual depreciation expense

Annual earnings: $53,000 - $42,400 = $10,600

A...

help_outline

Image Transcriptionclose

annual earnings Average rate of return = -x 100 average investment $10, 600 -× 100 $212,000 = 5%

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Accounting

Financial Accounting

Related Accounting Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: The Signage Company specializes in the maintenance and repair of signs, such as billboards. On March...

A: Record adjusted journal entries for accounts at March 31 as shown below:

question_answer

Q: Required: Supply the missing information on the following schedule of cost of goods manufactured VIV...

A: Identify the missing information in the cost of goods manufactured schedule: 

question_answer

Q: Liability Transactions The following items were selected from among the transactions completed by As...

A: Journal entries are the recording of all the business transactions in the books of accounts. The ent...

question_answer

Q: Analyze Valley Hospital's admissions time variance Valley Hospital began using standards to evaluate...

A: “Hey, since there are multiple questions posted, we will answer first three question. If you want an...

question_answer

Q: E 4-2 Consolidated statement items with equity method Pop Corporation purchased 80 percent of the...

A: Pop’s income from Son for 2016: Results of formulas used in excel sheet is as follows:   

question_answer

Q: On December 31, the following data were accumulated for preparing the adjusting entries for Bellingh...

A: (a) Adjusting Entries: Adjusting entries indicates those entries, which are passed in the books of a...

question_answer

Q: Cash payback period for a Service Company Prime Financial Inc. is evaluating two capital investment ...

A: Payback period refers to the time within which the original amount invested is returned back to the ...

question_answer

Q: Can someone help me solve this?

A: Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income st...

question_answer

Q: An accountant prepared the following post-closing trial balance: La Casa Services Co. Post-Closing T...

A: Post-Closing Trial Balance: After passing all the journal entries and the closing entries of the per...