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 $176,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $44,000. 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 15% Year 6% 10% 12% 20% 1 0.943 0.909 0.893 0.870 0.833 1.736 2 1.833 1.690 1.626 1.528 2.673 2.283 2.487 2.402 2.106 4 3.465 3.170 3.037 2.855 2.589 3.605 3.353 5 4.212 3.791 2.991 3.785 4.917 4.355 4.111 3.326 3.605 7 5.582 4.868 4.564 4.160 6.210 4.968 4.487 3.837 8 5.335 6.802 5.759 5.328 4.772 4.031 6.145 5.650 5.019 10 7.360 4.192 Compute the following: Compute the following: The average rate of return, giving effect to straight-line depreciation on the investment. If required, round your answer to one decimal place. a. % 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 Spanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $176,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $44,000. 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 15% Year 6% 10% 12% 20% 1 0.943 0.909 0.893 0.870 0.833 1.736 2 1.833 1.690 1.626 1.528 2.673 2.283 2.487 2.402 2.106 4 3.465 3.170 3.037 2.855 2.589 3.605 3.353 5 4.212 3.791 2.991 3.785 4.917 4.355 4.111 3.326 3.605 7 5.582 4.868 4.564 4.160 6.210 4.968 4.487 3.837 8 5.335 6.802 5.759 5.328 4.772 4.031 6.145 5.650 5.019 10 7.360 4.192 Compute the following: Compute the following: The average rate of return, giving effect to straight-line depreciation on the investment. If required, round your answer to one decimal place. a. % 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
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 14E
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Transcribed Image Text: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 $176,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash
flows of $44,000. 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
15%
Year
6%
10%
12%
20%
1
0.943
0.909
0.893
0.870
0.833
1.736
2
1.833
1.690
1.626
1.528
2.673
2.283
2.487
2.402
2.106
4
3.465
3.170
3.037
2.855
2.589
3.605
3.353
5
4.212
3.791
2.991
3.785
4.917
4.355
4.111
3.326
3.605
7
5.582
4.868
4.564
4.160
6.210
4.968
4.487
3.837
8
5.335
6.802
5.759
5.328
4.772
4.031
6.145
5.650
5.019
10
7.360
4.192
Compute the following:
Transcribed Image Text:Compute the following:
The average rate of return, giving effect to straight-line depreciation on the investment. If required, round your answer to one decimal place.
a.
%
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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