Great Plains Transportation Inc. is considering acquiringequipment at a cost of $272,000. The equipment has an estimatedlife of 10 years and no residual value. It is expected to provideyearly net cash flows of $34,000. The company's minimum desiredrate of return for net present value analysis is 15%.
Present Value of an Annuity of $1 atCompound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192
Compute the following:
a. The average rate of return, giving effect tostraight-line depreciation on the investment. If required, roundyour answer to one decimal place.
%
b. The cash payback period.
8 years
c. The net present value. Use the above tableof the present value of an annuity of $1. Round to the nearestdollar. If required, use a minus sign to indicate negative netpresent value" for current grading purpose.
Present value of annual net cash flows $ Less amount to be invested $ Net present value $
Great Plains Transportation Inc. is considering acquiringequipment at a cost of $272,000. The equipment has an estimatedlife of 10 years and no residual value. It is expected to provideyearly net cash flows of $34,000. The company's minimum desiredrate of return for net present value analysis is 15%.
| Present Value of an Annuity of $1 atCompound Interest | |||||
| Year | 6% | 10% | 12% | 15% | 20% |
| 1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
| 2 | 1.833 | 1.736 | 1.690 | 1.626 | 1.528 |
| 3 | 2.673 | 2.487 | 2.402 | 2.283 | 2.106 |
| 4 | 3.465 | 3.170 | 3.037 | 2.855 | 2.589 |
| 5 | 4.212 | 3.791 | 3.605 | 3.353 | 2.991 |
| 6 | 4.917 | 4.355 | 4.111 | 3.785 | 3.326 |
| 7 | 5.582 | 4.868 | 4.564 | 4.160 | 3.605 |
| 8 | 6.210 | 5.335 | 4.968 | 4.487 | 3.837 |
| 9 | 6.802 | 5.759 | 5.328 | 4.772 | 4.031 |
| 10 | 7.360 | 6.145 | 5.650 | 5.019 | 4.192 |
Compute the following:
a. The average rate of return, giving effect tostraight-line depreciation on the investment. If required, roundyour answer to one decimal place.
%
b. The cash payback period.
8 years
c. The net present value. Use the above tableof the present value of an annuity of $1. Round to the nearestdollar. If required, use a minus sign to indicate negative netpresent value" for current grading purpose.
| Present value of annual net cash flows | $ |
| Less amount to be invested | $ |
| Net present value | $ |
Related questions
A project is estimated to cost $77,766 and provide annual netcash flows of $26,000 for five years.
| Present Value of an Annuity of $1 atCompound Interest | |||||
| Year | 6% | 10% | 12% | 15% | 20% |
| 1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
| 2 | 1.833 | 1.736 | 1.690 | 1.626 | 1.528 |
| 3 | 2.673 | 2.487 | 2.402 | 2.283 | 2.106 |
| 4 | 3.465 | 3.170 | 3.037 | 2.855 | 2.589 |
| 5 | 4.212 | 3.791 | 3.605 | 3.353 | 2.991 |
| 6 | 4.917 | 4.355 | 4.111 | 3.785 | 3.326 |
| 7 | 5.582 | 4.868 | 4.564 | 4.160 | 3.605 |
| 8 | 6.210 | 5.335 | 4.968 | 4.487 | 3.837 |
| 9 | 6.802 | 5.759 | 5.328 | 4.772 | 4.031 |
| 10 | 7.360 | 6.145 | 5.650 | 5.019 | 4.192 |
Determine the internal rate of return for this project, usingthe Present Value of an Annuity of $1 at CompoundInterest table shown above.
| Great Plains Transportation Inc. is considering acquiringequipment at a cost of $232,000. The equipment has an estimatedlife of 10 years and no residual value. It is expected to provideyearly net cash flows of $29,000. The company's minimum desiredrate of return for net present value analysis is 10%.
Compute the following: a. The average rate of return, giving effect tostraight-line depreciation on the investment. If required, roundyour answer to one decimal place. b. The cash payback period. c. The net present value. Use the above tableof the present value of an annuity of $1. Round to the nearestdollar. If required, use a minus sign to indicate negative netpresent value" for current grading purpose.
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Cash Payback Period, Net Present Value Analysis, and QualitativeConsiderations The plant manager of Shenzhen Electronics Company isconsidering the purchase of new automated assembly equipment. Thenew equipment will cost $375,000. The manager believes that the newinvestment will result in direct labor savings of $75,000 per yearfor 10 years.
| Present Value of an Annuity of $1 atCompound Interest | |||||
| Year | 6% | 10% | 12% | 15% | 20% |
| 1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
| 2 | 1.833 | 1.736 | 1.690 | 1.626 | 1.528 |
| 3 | 2.673 | 2.487 | 2.402 | 2.283 | 2.106 |
| 4 | 3.465 | 3.170 | 3.037 | 2.855 | 2.589 |
| 5 | 4.212 | 3.791 | 3.605 | 3.353 | 2.991 |
| 6 | 4.917 | 4.355 | 4.111 | 3.785 | 3.326 |
| 7 | 5.582 | 4.868 | 4.564 | 4.160 | 3.605 |
| 8 | 6.210 | 5.335 | 4.968 | 4.487 | 3.837 |
| 9 | 6.802 | 5.759 | 5.328 | 4.772 | 4.031 |
| 10 | 7.360 | 6.145 | 5.650 | 5.019 | 4.192 |
a. What is the payback period on thisproject?
years
b. What is the net present value, assuming a10% rate of return? Use the table provided above. Round to thenearest whole dollar.
| Net present value | $ |
