Continental Railroad Inc. is considering acquiring equipment at a cost of $552,000. The equipment has an estimated

Question:

Continental Railroad Inc. is considering acquiring equipment at a cost of $552,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $92,000. The company’s minimum desired rate of return for net present value analysis is 10%.

Compute the following:

(a) The average rate of return, giving effect to straight-line depreciation on the investment, Round whole present to one decimal place.

(b) The cash pay back period.

(c) The net present value. Use the present value of an annuity of $1 table appearing in this chapter (Exhibit 2). Round to the nearest dollar.

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