Great Plains Railroad Inc. is considering acquiring equipment at a cost of $450,000

Great Plains Railroad Inc. is considering acquiring equipment at a cost of $450,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $75,000. The company’s minimum desired rate of return for net present value analysis is 10%.

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 (Exhibit 2). Round to the nearest dollar.


Answer: