2 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 $148,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $37,000. The company's minimum desired rate of return for net present value analysis is 10%. 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 3.465 4 3.170 3.037 2 855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 3.326 4.355 4.111 3.785 7 4.868 4.160 5.582 4.564 3.605 4.968 4.487 3.837 8 6.210 5.335 9 4.772 4.031 6.802 5.759 5.328 7.360 5.650 4.192 10 6.145 5.019 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. 0.3 X % b. The cash payback period. Previous Next > Check My Work Save and Edit Submit Assignment for Grading All work saved Computer te TOTO WISH a. The average rate of return, giving effect to straight-line depreciation on the investment. If required, round your answer to one decimal place. 0.3 X % 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 net cash flows Amount to be invested Net present value Feedback Check My Work a. Divide the estimated average annual income by the average investment. Net cash flow less the annual depreciation expense equals average annual income. Investment cost divided by two equals average investment. b. Divide the amount to be invested by the annual net cash inflow. c. Subtract the cost from the present value of the annual net cash flow. (Use the present value of an annuity factor for 10 periods at 10%, refer Exhibit 5 in the text.) Previous Next Check My Work