Spanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $305,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash...


Spanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $305,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $61,000. 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

Year

6%

10%

12%

15%

20%
10.9430.9090.8930.8700.833
21.8331.7361.6901.6261.528
32.6732.4872.4022.2832.106
43.4653.1703.0372.8552.589
54.2123.7913.6053.3532.991
64.9174.3554.1113.7853.326
75.5824.8684.5644.1603.605
86.2105.3354.9684.4873.837
96.8025.7595.3284.7724.031
107.3606.1455.6505.0194.192

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.
fill in the blank 1 %



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 a negative net present value for the current grading purposes.

















Present value of annual net cash flows$
Amount to be invested$
Net present value$


Jun 09, 2022
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