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AccountingQ&A LibraryAverage Rate of Return, Cash Payback Period, Net Present Value Method for a Service CompanySpanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $102,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $51,000. The company's minimum desired rate of return for net present value analysis is 12%.Present Value of an Annuity of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.83321.8331.7361.6901.6261.52832.6732.4872.4022.2832.10643.4653.1703.0372.8552.58954.2123.7913.6053.3532.99164.9174.3554.1113.7853.32675.5824.8684.5644.1603.60586.2105.3354.9684.4873.83796.8025.7595.3284.7724.031107.3606.1455.6505.0194.192Compute 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.? years c. The net present value. Use the above table of the present value of an annuity of $1. Round to the nearest dollar. If required, use a minus sign to indicate negative net present value for current grading purpose.Present value of annual net cash flows$Amount to be invested$Net present value$Question

Asked Dec 2, 2019

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Average Rate of Return, Cash Payback Period, Net Present Value Method for a Service Company

Spanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $102,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $51,000. 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 |

5 | 4.212 | 3.791 | 3.605 | 3.353 | 2.991 |

6 | 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:

**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.

? 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 | $ |

Amount to be invested | $ |

Net present value | $ |

Step 1

**a. Compute average rate of return on the investment as shown below:**

Step 2

**b. Compute cash payback period ...**

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