Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Chapter 12, Problem 14E
(a)
To determine
Determine the average
(b)
To determine
Determine the cash payback period for the equipment.
(c)
To determine
Calculate the
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Average rate of return, cash payback period, net present value method for a service company
The St. Louis to Seattle Railroad is considering acquiring equipment at a cost of $3,600,000. The equipment has an estimated life of 8 years and no residual value. It is expected to provide yearly net cash flows of $750,000. The company’s minimum desired rate of return for net present value analysis is 12%.
Average rate of return, cash payback period, net present value method for a service company
The St. Louis to Seattle Railroad is considering acquiring equipment at a cost of $140,000. The equipment has an estimated life of 10 years and no residua
value. It is expected to provide yearly net cash flows of $28,000. The company's minimum desired rate of return for net present value analysis is 10%.
Present Value of an Annuity of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
2
3
4
5
6
0.943
1.833
2.673
3.465
4.212
4.917
7
8
9
10
Compute the following:
5.582
6.210
6.802
7.360
0.909
1.736
2.487
3.170
3.791
4.355
Amount to be invested
4.868
5.335
5.759
6.145
b. The cash payback period.
5 years
Net present value
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650
Present value of annual net cash flows
0.870
1.626
2.283
2.855
3.353
3.785
4.160
4.487
4.772
5.019
0.833
a. The average rate of return, giving effect to straight-line depreciation on the investment. If required, round your…
Average Rate of Return, Cash Payback Period, Net Present Value Method for a Service Company
Spanish Peaks Railroad Inc. is considering acquiring equipment at a cost of $130,.000, The eguipment has an estimated life of 10 years and no residual value. It is expected to provide
yearly net cash flows of $65,000. The company's minimum desired rate of return for net present value analysis is 12%.
Present Value of an Annuity of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
0.943
0.909
0.893
0.870
0.833
1.833
1.736
1.690
1.626
1.528
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 to straight-line depreciation on the investment. If required, round your answer to one decimal place.
%
b. The cash payback period.
2 years…
Chapter 12 Solutions
Managerial Accounting
Ch. 12 - What are the principal objections to the use of...Ch. 12 - Discuss the principal limitations of the cash...Ch. 12 - Prob. 3DQCh. 12 - Your boss has suggested that a one-year payback...Ch. 12 - Prob. 5DQCh. 12 - Prob. 6DQCh. 12 - A net present value analysis used to evaluate a...Ch. 12 - Two projects have an identical net present value...Ch. 12 - Prob. 9DQCh. 12 - What are the major disadvantages of the use of the...
Ch. 12 - Prob. 11DQCh. 12 - Prob. 12DQCh. 12 - Average rate of return Determine the average rate...Ch. 12 - Prob. 2BECh. 12 - Prob. 3BECh. 12 - Internal rate of return A project is estimated to...Ch. 12 - Prob. 5BECh. 12 - Average rate of return The following data are...Ch. 12 - Average rate of returncost savings Maui...Ch. 12 - Average rate of returnnew product Hana Inc. is...Ch. 12 - Determine cash flows Natural Foods Inc. is...Ch. 12 - Cash payback period for a service company Janes...Ch. 12 - Cash payback method Lily Products Company is...Ch. 12 - Prob. 7ECh. 12 - Net present value method for a service company...Ch. 12 - Net present value methodannuity for a service...Ch. 12 - Net present value methodannuity Jones Excavation...Ch. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Prob. 17ECh. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Net present value-unequal lives Bunker Hill Mining...Ch. 12 - Prob. 22ECh. 12 - Average rate of return method, net present value...Ch. 12 - Prob. 2PACh. 12 - Net present value method, present value index, and...Ch. 12 - Net present value method, internal rate of return...Ch. 12 - Prob. 5PACh. 12 - Prob. 6PACh. 12 - Prob. 1PBCh. 12 - Prob. 2PBCh. 12 - Net present value method, present value index, and...Ch. 12 - Prob. 4PBCh. 12 - Prob. 5PBCh. 12 - Prob. 6PBCh. 12 - San Lucas Corporation is considering investment in...Ch. 12 - Prob. 2MADCh. 12 - Prob. 3MADCh. 12 - Prob. 4MADCh. 12 - Prob. 5MADCh. 12 - Assume Home Garden Inc. in MAD 26-5 assigns the...Ch. 12 - Ethics in Action Danielle Hastings was recently...Ch. 12 - Prob. 4TIFCh. 12 - CEO, Worthington Industries (WOR) (a...Ch. 12 - Prob. 6TIFCh. 12 - Prob. 1CMACh. 12 - Staten Corporation is considering two mutually...Ch. 12 - Prob. 3CMACh. 12 - Foster Manufacturing is analyzing a capital...
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