eBook Learning Objective 2Learning Objective 3 Exercise 26-14 (Algorithmic) Aver

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eBook Learning Objective 2Learning Objective 3 Exercise 26-14 (Algorithmic) Average Rate of Return, Cash Payback Period, Net Present Value Method Great Plains Transportation Inc. is considering acquiring equipment at a cost of $98,000. The equipment has an estimated life of 10 years and no residual value. It is expected to provide yearly net cash flows of $49,000. 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   Present Value of an Annuity of $1 at Compound InterestYear6 .9430.9090.8930.8700.83321.8331.7361.6901.6261.52832.6732.4872.4022.2832.10643.4653.1703.0372.8552.58954.2123.7913.6053.3532.99164.9174.3554.1113.7853.32675.5824.8684.5644.1603.60586.2105.3354.9684.4873.83796.8025.7595.3284.7724.031107.3606.1455.6505.0194.192             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.Select2345678Item 2 years c. Compute the net present value. Use the above table of the present value of an annuity of $1. Round to the nearest dollar.Present value of annual net cash flows:$ Less amount to be invested:$ Net present value:$

Explanation / Answer

Hi,

Please find the answers as follows:

A) Average rate of return on investment = (49000 - 98000/10)/98000/2 = 80%

B) Pay Back Period = 98000/49000 = 2 years

C) Present Value of Net Cash Flows:

= -98000 + 49000/(1+.10)^1 + 49000/(1+.10)^2 + 49000/(1+.10)^3 + 49000/(1+.10)^4 + 49000/(1+.10)^5 + 49000/(1+.10)^6 + 49000/(1+.10)^7 + 49000/(1+.10)^8 + 49000/(1+.10)^9 + 49000/(1+.10)^10 = 203084

Thanks.

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