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Compute the average rate of return

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Problem - Spanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $1,250,000. The equipment has an estimated life of eight years and no residual value. It is expected to provide yearly net cash flows of $312,500. 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.

b. The cash payback period.

c. The net present value.

Reference no: EM132717933

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