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 $1,250,000. The equipment has an estimated life of eight years and no residual value. It is expected to provide yearly net cash flows of $312,500. The company’s minimum desired rate of return for net present value analysis is 12%. Compute the following: A. The average rate of return, giving effect to straight-line depreciation on the investment. B. The cash payback period. C. The net present value. Use the present value of an annuity table appearing in Exhibit 5 of this chapter.

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Managerial Accounting

15th Edition
Carl Warren + 1 other
Publisher: South-Western College Pub
ISBN: 9781337912020
BuyFind

Managerial Accounting

15th Edition
Carl Warren + 1 other
Publisher: South-Western College Pub
ISBN: 9781337912020

Solutions

Chapter
Section
Chapter 12, Problem 14E
Textbook Problem

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 $1,250,000. The equipment has an estimated life of eight years and no residual value. It is expected to provide yearly net cash flows of $312,500. The company’s minimum desired rate of return for net present value analysis is 12%.

Compute the following:

  1. A. The average rate of return, giving effect to straight-line depreciation on the investment.
  2. B. The cash payback period.
  3. C. The net present value. Use the present value of an annuity table appearing in Exhibit 5 of this chapter.

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Chapter 12 Solutions

Managerial Accounting
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