Average Rate of Return Method, Net Present Value Method, and Analysis The capital investment committee of Ellis Transpor

[answerhappygod]

Average Rate Of Return Method Net Present Value Method And Analysis The Capital Investment Committee Of Ellis Transpor 1 (81.43 KiB) Viewed 31 times

Average Rate of Return Method, Net Present Value Method, and Analysis The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects. The estimated income from operations and net cash flows from each investment are as follows: Warehouse Tracking Technology Income from Net Cash Income from Net Cash Flow Year Operations Flow Operations 1 $41,400 $133,000 $87,000 $213,000 2 41,400 133,000 66,000 180,000 3 41,400 133,000 33,000 126,000 4 41,400 133,000 14,000 86,000 5 41,400 133,000 7,000 60,000 Total $207,000 $665,000 $207,000 $665,000 Each project requires an investment of $460,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis.
Each project requires an investment of $460,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 12% for purposes of the net present value analysis. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467 0.404 0.327 0.233 9 0.592 0.424 0.361 0.284 0.194 10 0.558 0.386 0.322 0.247 0.162
Required: 1a. Compute the average rate of return for each investment. Average Rate of Return Warehouse 18 % Tracking Technology 18 % 1b. Compute the net present value for each investment. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value. If required, round to the nearest dollar. Warehouse Tracking Technology Present value of net cash flow total $ $ Less amount to be invested $ 460,000 460,000 Net present value 2. The warehouse has a smaller net present value as tracking technology cash flows occur earlier in time. Thus, if only one of the two projects can be accepted, the tracking technology would be the more attractive.