EX $24-14$ Average rate of return, cash payback period, net present value

Obj. $2,3$ method for a service company

b$.4\mathrm{.}8$ years

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The St$.$ Louis to Seattle Railroad is considering acquiring equipment at a cost of $$3,600,000.$ The equipment has an estimated life of $8$ years and no residual value. It is expected to provide yearly net cash flows of $$750,000.$ 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. Round to one decimal place.

b$.$ The cash payback period. Round to one decimal place.

c$.$ The net present value. Use the present value of an annuity table appearing in Exhibit $5$ of this chapter.