The capital investment committee of Safety Haul Trucking Inc. is considering two in-vestment projects. The estimated income from operations and net cash flows from each investment are as follows:

Each project requires an investment of $400,000. Straight-line depreciation will be used, and no residual value is expected. The committee has selected a rate of 15% for purposes of the net present value analysis.
1. Compute the following:

a. The average rate of return for each investment.
b. The net present value for each investment. Use the present value of $1 table appearing in this chapter (Exhibit 1).

2.  Prepare a brief report for the capital investment committee, advising it on the relative merits of the two projects.

Exhibit 1:

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Tracking Technology Income from Warehouse Income from Net Cash Net Cash Year Operations $ 90,000 Flow $170,000 160,000 110,000 80,000 60,000 Flow $116,000 116,000 116,000 116,000 116,000 Operations $ 36,000 80,000 36,000 30,000 36,000 4 36,000 (20,000) 36,000 Total $180,000 $180,000 $580,000 $580,000 Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 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 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 0.665 0.513 0.452 0.376 0.279 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