Southern Rail Inc. is considering acquiring equipment at a cost of $442,500. The equipment has an estimated

Question:

Southern Rail Inc. is considering acquiring equipment at a cost of $442,500. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $88,500. 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 table of the present value of an annuity of $1 appearing in this chapter. Round to the nearest dollar.

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