exercises ch26

****Bi-Coastal Railroad Inc. is considering acquiring equipment at a cost of $288,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $36,000. The companys minimum desired rate of return for net present value analysis is 10%.

a. The average rate of return, assuming the annual earnings are equal to the net cash flows less the annual depreciation expense on the equipment. If required, round your answer to one decimal place _____%.

b. The cash payback period ____years.

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	$____
Less amount to be invested	$____
Net present value	$____

The following data are accumulated by Paxton Company in evaluating the purchase of $118,900 of equipment, having a four-year useful life: Net Income Net Cash Flow Year 1 $32,000 $54,000 Year 2 20,000 42,000 Year 3 9,000 31,000 Year 4 (1,000) 21,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162 a. Assuming that the desired rate of return is 15%, determine the net present value for the proposal. Use the table of the present value of $1 presented above. If required, round to the nearest dollar. If required, use the minus sign to indicate a negative net present value. Present value of net cash flow Amount to be invested $ Net present value $ 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 4 3.170 3.037 2.855 2.589 5 3.791 3.605 2.991 3.465 4.212 4.917 5.582 3.353 3.785 6 4.355 4.111 3.326 7 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192