Average rate of return method, net present value method, and analysis for a service company

The capital investment committee of Ellis Transport and Storage Inc. is considering two investment projects. The estimated operating income and net cash flows from each investment are as follows:

Year	Warehouse Operating Income	Warehouse Net Cash Flow	Tracking Technology Operating Income	Tracking Technology Net Cash Flow
1	$ 61,400	$135,000	$ 34,400	$108,000
2	51,400	125,000	34,400	108,000
3	36,400	110,000	34,400	108,000
4	26,400	100,000	34,400	108,000
5	(3,600)	70,000	34,400	108,000
Total	$172,000	$540,000	$172,000	$540,000

Each project requires an investment of $368,000. 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.

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. If required, round your answers to one decimal place.

Investment Committee	Average Rate of Return
Warehouse
Tracking Technology

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.

Line Item Description	Warehouse	Tracking Technology
Total present value of net cash flow
Amount to be invested
Net present value