Average rate of return, cash payback period, net present value method for a service company The St. Louis to Seattle Railroad is considering acquiring equipment at a cost of $140,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $28,000. 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 0.833 2 1.528 3 4 5 6 7 8 9 10 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. % 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 0.909 1.736 2.487 3.170 Amount to be invested 3.791 4.355 4.868 Net present value 5.335 b. The cash payback period. 5 years 5.759 6.145 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 Present value of annual net cash flows 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 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. 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192
Average rate of return, cash payback period, net present value method for a service company The St. Louis to Seattle Railroad is considering acquiring equipment at a cost of $140,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $28,000. 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 0.833 2 1.528 3 4 5 6 7 8 9 10 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. % 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 0.909 1.736 2.487 3.170 Amount to be invested 3.791 4.355 4.868 Net present value 5.335 b. The cash payback period. 5 years 5.759 6.145 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 Present value of annual net cash flows 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 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. 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter12: Capital Investment Analysis
Section: Chapter Questions
Problem 14E
Related questions
Question
Transcribed Image Text:Average rate of return, cash payback period, net present value method for a service company
The St. Louis to Seattle Railroad is considering acquiring equipment at a cost of $140,000. The equipment has an estimated life of 10 years and no residua
value. It is expected to provide yearly net cash flows of $28,000. 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
2
3
4
5
6
0.943
1.833
2.673
3.465
4.212
4.917
7
8
9
10
Compute the following:
5.582
6.210
6.802
7.360
0.909
1.736
2.487
3.170
3.791
4.355
Amount to be invested
4.868
5.335
5.759
6.145
b. The cash payback period.
5 years
Net present value
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
Present value of annual net cash flows
0.870
1.626
2.283
2.855
3.353
3.785
4.160
4.487
4.772
5.019
0.833
a. The average rate of return, giving effect to straight-line depreciation on the investment. If required, round your answer to one decimal place.
%
1.528
$
2.106
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.
2.589
2.991
3.326
3.605
3.837
4.031
4.192
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning