Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

image text in transcribed
image text in transcribed
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 $268,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of 567,000 . The company's minimum desired rate of return for net present value analysis is 15%. Present Value of an Annuity of $1 at Compound Interest 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. 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. Ferdoack TCheck uy 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 fiow. (Use the present value of an annulty factor for 10 periods at 15%, refer Exhibit 5 in the text.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Money Laundering Prevention Deterring Detecting And Resolving Financial Fraud

Authors: Jonathan E. Turner

1st Edition

0470874759, 978-0470874752

More Books

Students also viewed these Accounting questions