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Problem - Average Rate of Return

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Problem - Average Rate of Return, Cash Payback Period, Net Present Value Method

Southwest Transportation Inc. is considering a distribution facility at a cost of $10,000,000. The facility has an estimated life of 10 years and a $2,000,000 residual value. It is expected to provide yearly net cash flows of $2,500,000. The company's minimum desired rate of return for net present value analysis is 15%.

Required -

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

b. Compute the cash payback period.

c. Compute the net present value.

Reference no: EM132706979

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