Compute the cash payback period

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Problem - Average rate of return, cash payback period, net present value method

Continental Railroad Inc. is considering acquiring equipment at a cost of $552,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $92,000. The company's minimum desired rate of return for net present value analysis is 10%.

Required - Compute the following:

a. The average rate of return, giving effect to straight-line depreciation on the investment. Round whole percent to one decimal place.

b. The cash payback period.

c. The net present value. Use the present value of an annuity of $1 table appearing in this chapter.

Reference no: EM132690483

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