Accounting

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 $264,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $66,000. 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 Year 1 2 3 4 5 6 7 8 9 10 6% 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 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. 50 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 of annual net cash flows Amount to be invested Net present value