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%.
Compute the following:
a. The average rate of return, giving effect to straight-line depreciation on the investment. Round to one decimal place.
b. The cash payback period.
c. The net present value. Use the table of the present value of an annuity of $1 appearing in Exhibit 5.
Exhibit 5

Present Value of an Annuity of $1 at Compound Interest 129% 0.893 1.690 2.402 3.037 3.605 Year 6% 0.943 1.833 2.673 3.465 4.212 4.917 5.582 6.210 6.802 7.360 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 15% 0870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 4.772 5.019 2096 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 4.564 4.968 5.328 5.650 10